An analysis of the capital budgeting sophistication of primary forest products firms in the Eastern United States
The investment decision-making techniques, financing methods and equipment needs of 1,818 sawmills and pallet manufacturers in the Eastern United States were studied. Information was gathered using a mail survey and 581 usable responses were received.
It was found that discounted cash flow techniques have not been extensively adopted by the firms under study as primary methods of investment analysis. Undiscounted payback period was the most extensively used quantitative method. The majority of firms compared the expected return on an investment to a minimum rate of return but this minimum was often determined non-quantitatively. Firms most often accounted for the risk of an investment by subjective means.