Abstract:

A sample survey was carried out to analyze the capital budgeting practices of Sri Lankan listed companies.  We managed to get 44 responses out of 128 mail questionnaires. The survey found that discounted as well as non-discounted methods are equally used by the Sri Lankan companies for the capital budgeting decisions. Net Present Value, IRR and Payback are the most popular evaluation techniques. It is worth to notice that fair number of respondents use Real Option techniques for the capital budgeting decisions.  Majority of the companies compute WACC and current capital structure is used mostly for weight computations. CAPM is popular in computing cost of equity even though CAPM is not true for Sri Lankan context.