Capital Budgeting Practices in Corporate Canada
Financial Practice and Education, Fall/Winter 1995
Posted: 27 Jun 1998
This study provides direct empirical evidence on the capital budgeting process including estimation of the cost of capital based on a survey of 133 large Canadian companies. Our results indicate that the use of DCF methods has become a norm. Our respondents report high use of subjectivity and judgment in the estimation of inputs into the capital budgeting process, reflecting its strategic nature. Subjective management estimates are used as much to generate cash flow forecasts as the more sophisticated quantitative methods. Similarly, although WACC seems to be the preferred discount rate, determination of the cost of equity is mainly judgmental.
JEL Classification: G15
Suggested Citation: Suggested Citation