The Use of Capital Budgeting Techniques in Evaluating Investment Projects: An Applied Study on the Palestinian Corporations Working in Gaza Strip

The objective of this study is to explore the use of capital budgeting techniques in evaluating investment projects and the obstacles (if any) that hinder the use of capital budgeting techniques in the Palestinian public corporations in Gaza strip. For this purpose, the study used the descriptive analytical approach and the population of the study included all the eighteen Palestinian public corporations registered in the ministry of economy-Gaza. Fifty questionnaires were sent to financing affairs and investing departments employees. The response rate was 80% and the study used the SPSS program to analyze the results. The results indicated that the Palestinian public corporations in Gaza strip use the capital budgeting techniques when selecting investment projects and that the use of these techniques was in the range from 61 to 80%, and that the profitability index is the most used technique while the net present value was found to be the least used technique. The results also indicated that the Palestinian public corporations in Gaza strip do not use the weighted average cost of capital (whether adjusted or unadjusted) for determining the discount rate needed in the use of some techniques. The study also found that the Palestinian corporations in Gaza strip consider many factors before adopting any capital budgeting technique as a basis for comparing different investment projects and that the availability of data and information for the company, followed by the preference of the CBT that concentrates on the cash flows and the management’s conviction of the technique was found to be the most important factor that is considered before adopting a technique of capital budgeting as a basis for evaluating proposed investment projects. On the other hand, the results indicated that there are many obstacles that hinder the use of capital budgeting techniques by the Palestinian corporations in Gaza strip and that the unavailability of the necessary data and information, followed by uncertainty surrounding the use of the capital budgeting techniques, is the most important obstacle hindering the use of capital budgeting techniques whereas the existence of external institutions for managing investments was found to be the least effective factor in undermining the use of capital budgeting techniques. The study suggested a set of recommendations, foremost of which is to increase the use of the net present value when choosing among alternative investment projects as it measures the addition to the stockholders’ wealth.