EFFECT OF NET PRESENT VALUE INVESTMENT APPRAISAL PRACTICE ON FINANCIAL PERFORMANCE OF CEMENT MANUFACTURING FIRMS IN KENYA

Langat Patrick Kipkirui, Dr. Sammy Kimungunyi

Abstract


An investment appraisal techniques process is a multi-faceted activity through which new investment projects are initiated, forecast the benefits and costs, evaluated, authorized and controlled. If this process is well-done, there is no doubt that the value of the company is maximized. Investment projects by nature require a large proportion of capital and playa strategic role in positioning the company in the local and international markets. Therefore, cement manufacturing firm’s investment managers have to make sure that all investment projects should follow the sound phases/steps in the investment process. This study was conducted to determine the effect of Net present value on the financial performance of manufacturing firms in Nairobi County. The study employed the descriptive research design in conducting the study. The target population for this research was 7 licensed manufacturing cement firms in the Country,  with the respondents being the managerial employees’ reasons been the target population been well defined, small and manageable, a census approach was employed in order to cover the entire population of 98 sampled respondent. The study used questionnaires to collect data. The data was tabulated, classified and summarized by descriptive measures such as frequency distribution, percentages, inferential statistics and mean and standard deviations. Tables and figures were used for presentation of analyzed data. The study found that Net present value has positive significant effect on financial performance of manufacturing firms in Nairobi County. The NPV is one of the advance investment appraisal techniques since it has the objective of wealth maximization, and takes into account time value of money and all cash flows of a project life span The study thus recommends cement manufacturing companies should treat financing and dividend decision in investment as irrelevant and rather focus on the result of NPV technique for investment decisions since it has an advance analytical framework which provides a rational basis for collective investment decision making.

Key words: Net Present Value, Financial Performance


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References


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