Examining Application of Complicated Capital Budgeting Techniques in the Petrochemical Industry

Subject Areas : مدیریت

Beit Allah Akbari Moghadam ¹ , Maryam Khalili Araghi ² , Morvarid Rajabi Moghadam ³

1 - Islamic Azad University, Qazvin Branch
2 - Allame Tabatabaei University
3 - Islamic Azad University, Qazvin Branch

Received: 2009-09-25 Accepted : 2009-11-02 Published : 2010-03-21

Keywords: Real Choice Reasoning or Real Option Reasoning,

Abstract :

Daily increasing complexity and specialization of financial management’s tasks in companies as well as great significant of capital expenditure in the companies’ success or lack of success have led to the emergence of methods and techniques of capital budgeting. Complicated capital budgeting is accompanied with several devices and various methods (such as Monte Carlo Simulation, certainty equivalents, Game Theory Decision Principles, and Real Choice Reasoning). Recent literature shows that complicated capital budgeting methods cannot supplant traditional capital budgeting methods and they, indeed, are a kind of the latter one. Capital budgeting methods and their various devices (complicated and traditional) may supplement each other or provide further information with regard to how investment theorems are solved. The current study is aimed at examining application of complicated capital budgeting techniques in the petrochemical industry. It is notable that novel financial techniques and even traditional ones are mostly applied in the petrochemical industry and that the largest and most complicated projects are presently executed in this field. Eventually, study findings imply an increase in peculiar uncertainty is not accompanied with application of complicated capital budgeting methods (including certainty equivalents, Game Theory Decision Principles, and Real Choice Reasoning Technique), while in the case of Monte Carlo Technique, an increase in peculiar uncertainty results from complicated capital budgeting methods (i.e. Monte Carlo Technique) being used. It can also be discussed that financial uncertainty (profit uncertainty, inflation uncertainty, and inflation rate uncertainty) is regarded as a factor affecting the application of complicated capital budgeting methods; amongst these three factors, inflation rate uncertainty acts the main role of influencing complicated capital budgeting methods.