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CHAPTER ONE 1.0 Introduction Background of the study

In today’s complex business environment, making investment decisions are among the most important and multifaceted of all management decisions as it represents major commitments of company’s resources and have serious consequences on the profitability and financial stability of a company. It is important to evaluate the proposals rationally with respect to both the economic feasibility of individual projects and the relative net benefits of alternative and mutually exclusive projects. It has inspired many research scholars and is primarily concerned with sizable investments in long-term assets, with long term life.
The growing internationalization of business brings stiff competition which requires a proper evaluation and weight age on investment appraisal issues viz. differing project life cycle, impact of inflation, analysis and allowance for risk. Therefore financial managers must consider these issues carefully when making capital budgeting decisions. Inflation is one of the important parameters that govern the financial issues on capital budgeting decisions.
Managers evaluate the estimated future returns of competing investment alternatives. Some of the alternatives considered may involve more risk than others. For example, one alternative may fairly assure future cash flows, whereas another may have a chance of yielding higher cash flows but may also result in lower returns. It is because, apart from other things, inflation plays a vital role on capital budgeting decisions and is a common fact of life all over the world. Inflation is a common problem faced by every finance manager which complicates the practical investment decision making than others. Most of the managers are concerned about the effects of inflation on the…...

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