Enkele aspekte van die kapitaalinvesteringsproses in die chemiese nywerheid

Abstract

SELECTED ASPECTS OF CAPITAL INVESTMENTS IN THE CHEMICAL INDUSTRY Capital investments are needed for economic growth in South-Africa. It is therefore important to ensure that new capital investments are evaluated in a correct and accurate manner. A decision based on incorrect and incomplete information, can be detrimental to a company. In this study the focus is on the methods used in practice to evaluate a capital project and the procedures used to accumulate information. The aspect of personal influence and manipulation of information is also briefly examined. Findings in the study proved that the majority of companies use the pay back method which is a traditional method and do not take the time value of money into consideration. The next most used method is net present value, which is a modern method and does take the time value of money into consideration. Various procedures are used to collect and calculate the information for a feasibility study. The majority of companies use detailed estimates and obtain quotations in writing to determine the capital amount of the new project. Sales volumes and values are based on market research and own estimates. Fixed and variable cost are obtained by detailed calculations of all the relevant cost elements or at least 80% of the more important cost elements. Sensitivity analyses are done by 90% and risk analyses by 40% of the companies used in the study. The number of companies doing risk analyses will increase in future due to the upliftment of sanctions and globalising of international companies. Sensitivity analyses

are used to determine the influence of changes in sales prices and volumes, cost changes in raw material, transport and labour, on the viability of the project. The quality of the decision to approve a capital project can be increased if the users of the different methods have a good knowledge of the method(s). Other aspects such as the intangible benefits of a new project should also be taken into consideration. Management should take a holistic view, and not only consider the outcome of the feasibility study, when considering the approval of a new capital project.