Capital budgeting and applications on Turkish industrial firms

Capital budgetin decisions in its nature are long term decisions which effect the future of the firms in micro view and the economic welfare in macro view. So these decisions which determine the future of the firms and the economy should be taken in most correct manner. Therefore firms start to use sophisticated capital budgeting methods more frequently when they take such important decisions. In finance literature, researchs suggest that firms? usage of sophisticated capital budgeting methods increases from ten percent to ninety percent in last fifty years. The purpose of this study is to explain capital budgeting concept that used to evaluate investment projects in finance context, appraise capital budgeting methods accoding to their advantages and disadvantages and develop some useful suggestions for share holders and managers by examining Turkish indsutrial firms? applications. The main finding of this study suggests that Turkish industrial firms use sophisticated methods frequently. Findings shows that firms prefer easy to use simple risk analysis methods and they use cost of equity as their cost of capital.Besides, Turkish industrial firms should use weighted average cost of capital as their capital cost and in capital budgeting process they should employ net present value and real options methods more frequently.Keywords: Sophisticated capital budgeting methods, risk analysis methods, cost of capital, weighted average cost o capital, net present value method, real options method