This paper reports the results of a questionnaire survey about the investment appraisal practices of the top 500 companies listed on the Australian Stock Exchange (ASX) and the internal and external factors which impact on the managers' decisions. For the companies which responded (41%), the results show that the majority of respondents predominately use discounted cash flow (DCF) techniques. Respondents use more than one technique to make investment appraisal decisions. The use of the non-DCF techniques such as payback period in the preliminary stages is a common practice. More often than not, non-DCF techniques are complemented by DCF techniques as NPV and IRR as the primary techniques.

In both theory and practice, it is well accepted that the objective of a firm should be to maximize shareholders' wealth and the interests of other stakeholders, and promote long-term stability and growth (Ehrhardt, 1994; Madden, 2005 and 2007; and Gitman et al., 2011). One area of financial decision making that impacts on the future generation of cash flows and the present value of the firm is the decision to invest in long-term capital projects, whose discounted future cash flows maximize the present value of the firm. The decision to invest in capital projects requires large amounts of money committed for a long time. These decisions are not easily reversible and therefore they should be made after a very careful consideration.

The study of finance theory has long postulated that the capital budgeting decision making should be based on the Discounted Cash Flow (DCF) because it allows a company to estimate the market value of the company (Brealey and Myers, 2003). Most capital expenditures involve large capital sums of money, so the decision making is usually the responsibility of the top management in most corporations. It is a job which requires a clear understanding of the impact of such investments on the corporation's overall strategy and survival. Donaldson (1972) suggested that important considerations inherent in the cost of capital concept should come to bear, not at the bottom of the investment decision-making process, but at the very top, as qualitative considerations play a part in shaping the top management's major strategic choices. It is common for corporations to have detailed written guidelines or policies which are followed systematically to make such far-reaching decisions. In Australia, one of the principles of corporate governance requires firms to have clear policies pertaining to investment appraisal decision making. Agency theory states that individuals are wealth maximizers (Tippet and Kluvers, 2009), therefore without such guidance and directions, decisions are made on the basis of principles which are not explained and based on personal interpretation and which are biased for the benefit of the decision maker and possibly detrimental to the maximization of the firm's value.

Applied Finance Journal, Capital Budgeting Process, Australian Companies, Australian Stock Exchange, Financial Decision Making, Financial Market, Decision Making Process, Capital Rationing, Capital Budgeting Techniques, Capital Investments Appraisal, Capital Budgeting Procedures, Market Capitalization, Optimization Models.