GUIDELINES FOR THE INVESTMENT CHOICE OF CAPITAL PROJECTS BY PUBLIC CORPORATIONS

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Abstract

This article provides guidelines on how public corporations can choose capital projects on the basis of economic and financial criteria. Project appraisal, selection and prioritisation criteria are listed, followed by a description of the way in which the result of each appraisal technique should be interpreted. Criteria that should be adhered to in the selection of mutually exclusive projects and the prioritisation of functionally independent projects in order to maximise the net output of public corporations in the long run are supplied. Applications of the proposed investment decision rules are illustrated by examples. Two techniques are proposed that may be used as additional decision-making instruments when evaluated projects show similar degrees of long-term financial viability.

Keywords: Benefit: Cost Ratio, Capital Recovery Period, First-Year Rate of Return, Incremental Benefit: Cost Ratio, Independent Projects, Indivisible Projects, Mutually Exclusive Projects, Net Present Value

How to cite this paper: Pienaar, W. J. (2010). Guidelines for the investment choice of capital projects by public corporations. Corporate Ownership & Control, 7(3-3), 407-415. https://doi.org/10.22495/cocv7i3c4p1