Investment Appraisal Techniques of Small and Medium Sized Enterprises (Smes) in Ethiopia (A Case Study In Selected Sub Cities of Addis Ababa City Administration)
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Date
2021-04
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A.A.U
Abstract
Small and medium scale enterprises (SMEs) are generally regarded as the engine of economic growth and equitable development in developing economies. To facilitate stronger and sustainable business or investment growth, decisions on how to allocate resources are very essential, hence require a systematic, analytical, and thorough approach as well as sound judgment. The sector has attracted many researches works due to its’ potential in contributing to global economic development if the challenges to the sector growth are identified and addressed. However these enterprises face investment appraisal problem. Poor investment decisions have been blamed for high rate of letdown and closure. Thus, the purpose of the study was to investigate investment appraisal techniques of small and medium scale enterprises in Ethiopia in case of selected SMES in Addis Ababa. The study adopted Theory of Investment Decisions, Agency Theory and Q Theory of Investment. It adopted a descriptive survey research design with a target population of 435 SMEs selected in Kirkos and Yeka sub cities of Addis Ababa city administration. The sample size was 209 SMEs. The researcher adopted purposive sampling to select sample frame from two sub cities (namely Kirkos and Yeka) and used convenience sampling technique to select respondents from Kirkos and Yeka sub cities of Addis Ababa city administration and collected data using questionnaires. Quantitative data was analyzed using descriptive statistics and presented in tables. The findings of the study show that SMEs in the case area do not consider investment appraisal techniques measure properly because of lack of knowledge. The study recommends that the government and other service providers to focus more on the issue of investment decisions for small and medium enterprises. In particular, they should train small and medium enterprises on the investment evaluation techniques, their advantages and disadvantages in relation to their financial goals
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Keywords
Investment Appraisal Techniques, Return on Capital Employed, Internal Rate of Return