Capital budgeting practices in the US forest products industry: A reappraisal

This study examined the capital investment practices Of publicly owned forest products firms in the United States in 2001 by replicating research reported by Cribbage and Redmond in 1985. The current study utilized a survey instrument to collect data that was identical to the Cribbage and Redmond, thereby allowing for direct comparison of data. Results indicate that discount cash flow techniques are the most preferred capital budgeting decision criteria used in the industry, similar to results reported by Cubbage and Redmond. However, there has been an increase in the use of the net present value methods, and, despite suggestions against its use in the financial literature, widespread use of internal rates of return measures in capital budgeting analysis. Some larger companies indicated frequent use of more sophisticated evaluation methods, such as economic value analysis. Additional questions were added to the 2001 survey to assess perceptions of risk and uncertainty as they pertain to capital budgeting practices and are also reported in this study.