Made available in DSpace on 2016-04-25T18:40:39Z (GMT). No. of bitstreams: 1 Jane Keilly de Paula.pdf: 1004717 bytes, checksum: 8ad453c72f92464abcae3e40e5f6163a (MD5) Previous issue date: 2009-05-27 / The capital budgeting decisions are very important for the future of a company, because it is through the investment in new machines, equipments, obligatory projects and other capital expenses, that the company assures survival and growth. As those types of investments usually commit great volumes of resources for a long period of time, becomes also extremely important the analysis process used in the evaluation, comparison and selection of investment projects. In that context, the main objective of this study is to investigate the use of capital budgeting techniques in the companies with stocks negociated in the São Paulo Stock Exchange (Bovespa) in the New Market segment. The used methodology was the descriptive research and the data were collected through a questionnaire with open questions sent by e-mail and, after the completion, returned by the same way. It has been made a comparison of the obtained results in this work with two researches accomplished in the decade of 80, whose differences of method and universe were detailed. The results show that the companies are developing along the time in the application of techniques and tools of investment analysis. It was verified that the Net Present Value (NPV) it is the main technique more used (56,3%) and the criterion of the capital recovery time (Payback) it is the second technique more used by the companies (37,5%). Therefore, the conclusion that the companies are following the theoretical recommendation that it considers NPV as the most complete method for the taken of investment decision / As decisões de orçamento de capital são de vital importância para o futuro de uma empresa, pois é através do investimento em novas máquinas, equipamentos, projetos obrigatórios e outros gastos de capital, que a empresa assegura sua sobrevivência e seu crescimento. Como esses tipos de investimentos geralmente comprometem grandes volumes de recursos por um longo período de tempo, torna-se também extremamente importante o processo de análise utilizado na avaliação, comparação e seleção de projetos de investimento. Nesse contexto, o objetivo principal desse trabalho é investigar o uso das técnicas de orçamento de capital nas empresas com ações negociadas na Bolsa de Valores de São Paulo (Bovespa) no segmento Novo Mercado. A metodologia utilizada foi a da pesquisa descritiva e os dados foram coletados através de um questionário com questões abertas enviado por e-mail e, após seu preenchimento, devolvido pelo mesmo meio. Comparou-se os resultados obtidos neste trabalho com duas pesquisas realizadas na década de 80, cujas diferenças de método e universo foram explicitadas. Os resultados mostram que as empresas estão evoluindo ao longo do tempo na aplicação de técnicas e ferramentas de análise de investimento. Constatou-se que o Valor Presente Líquido (VPL) é a técnica principal mais utilizada (56,3%) e o critério do tempo de recuperação do capital (Payback) é a segunda técnica mais utilizada pelas empresas (37,5%). Portanto, conclui-se que as empresas estão seguindo a recomendação teórica que considera o VPL como o método mais completo para a tomada de decisão de investimento

本研究的目的有二： 1. 針對台灣前五百大製造業做研究，了解環境不確 定程度對公司使用資本預算方法精密程度的影響，及資本預算程序精細程 度和公司績效的關係。 2. 針對環境不確定程度、資本預算程序精密程度 、公司績效三者，進行假說檢定，以了解在何種環境不確定程度下，應採 用何種資本預算程序，以提高更多的績效，幫助經理人選擇合適的資本預 算方法。主要的研究方法有四： 1. 文獻探討，包括資本預算理論及國內 外的實證研究。 2. 問卷調查，以郵寄方式寄給國內前五百大製造業廠商 的財務部門。 3. 人員深度訪談，於問卷回收後，針對有寄回問卷的廠商 ，以隨機抽樣方式，抽取數家廠商，作深度的訪談，以確定回收問卷資料 的正確性。 4. 統計分析，主要以複迴歸模式來驗證假說。研究結果顯示 如下：（一）國內製造業者傾向於使用較不精細的資本預算程序。國內製 造業者除了在專案的事先規劃方面有較多的努力外，不論在管理科學工具 的使用、敏感性分析與電腦模擬技術及事後的稽核與檢討等重要的資本預 算程序，似乎沒有特別的重視與執行。再者，在專案的評估技術方面，還 是以會計報酬率法、回收期間法較受製造業者的歡迎。（二）上市公司比 非上市公司採用較精細的資本預算程序。而推估其原因可能是上市公司的 規模較大，有足夠的資源及評估專案來支持專責部門的成立與運作，而且 受到投資大者的監督，因而採用較精細的資本預算程序。（三）環境不確 定程度愈高的公司傾向於使用愈精細的資本預算程序。無論以經理人對環 境的主觀知覺或是資產報酬率的標準差來衡量環境的不確定性，公司所面 臨環境的不確定程度與公司所使用資本預算精細程度間存有顯著的正向關 係。（四）環境不確定性較高的公司採用愈精細的資本預算程序將可產生 愈高的公司績效。故對於環境不確定性較高的公司應採用較精細的資本預 算方法，而環境不確定性較低的公司則在成本效益的考慮下，只需作基本 的分析即可達到一定的績效水準。

Bakgrund och problem: Vindkraftens tillförlitliga fastställelse av lönsamhet påverkas av olika osäkerheter, främst vindförhållanden men även ekonomiska faktorer. Vanligtvis används de traditionella metoderna så som nuvärdesmetoden, pay-back metoden och IRR för att värdera en investerings lönsamhet. Dessa metoder är dock otillräckliga vid värdering av riskfyllda projekt. Reala optioner tar hänsyn till flexibilitetens värde och är en komplettering till de traditionella metoderna vid värdering av riskfylla investeringar. Reala optioner möjliggör att fatta beslut efter iakttagelser av hur utvecklingen utvecklas. Genom flexibilitet kan osäkerhet minskas. Syfte: Syftet är att beskriva och analysera hur reala optioner tar sig uttryck i vindkraftsprojekt i Sverige. Detta för att skapa förståelse för om reala optioner används för att hantera den osäkerhet som föreligger i vindkraftsprojekt. Metod: Studien kännetecknas av en metod som är av hermeneutik, induktiv och kvalitativ karaktär. Studien blir därmed av tolkande art och vi utgår från empiri i studien. Semistrukturerade intervjuer har genomförts med tre bolag i vindkraftsbranschen. Slutsats: Utifrån vår forskningsfråga: ”Hur tar sig reala optioner uttryck i vindkraftsprojekt?” kunde vi finna tre av fem reala optioner i de studerade bolagen. Dessa är: optionen att skjuta upp investeringar, optionen att göra stegvisa investeringar och optionen att expandera. Trots att begreppet reala optioner inte används i de studerade bolagen kan slutsatser ändå dras att reala optioner existerar i vindkraftsprojekt. Uppsatsens bidrag: Vår förhoppning med uppsatsen är bland annat att den ska bidra med ökad förståelse för användningen av reala optioner i vindkraftsprojekt. Förslag till framtida forskning: Vår studie behandlar fem reala optioner. Trigeorgis (2005) redogör åtta reala optioner i artikeln: Making use of real options simple: an overview and applications in flexible/modular decision making. En studie som inkluderar alla åtta reala optioner i vindkraftsprojekt hade varit intressant. Detta för att undersöka om det finns fler reala optioner än de tre denna studie identifierat i vindkraftsprojekt. / Background and problem: The reliable determination of the wind power profitability is affected by various uncertainties, mainly wind conditions but also economic factors. Generally the traditional methods are used, such as net present value method, the pay-back method and the IRR when it comes to evaluate an investment's profitability. These methods are insufficient to valuing risky projects. Real options considering the value of flexibility and is a complement to the traditional methods when it comes to valuation of risky investments. Real options allow making decisions based on observations of how the evolution develops. Through flexibility, the uncertainty can be reduced. Purpose: The purpose is to describe and analyze how the real options are reflected in windpower projects in Sweden. This is to create an understanding if the real options are used to manage the uncertainty that exists in wind power projects. Method: The study is characterized by a method of hermeneutic, inductive and qualitative character. The study is therefore interpretive and the starting point of the study is empirical data. Semi-structured interviews were conducted with three companies in the wind power industry. Conclusion: Based on our research question: "How do the real options find their expression in wind power projects?" are we able to find three of the five real options in the studied companies. These are: the option to defer investment, the option to stage investment and the option to expand. Although the concept of real options is not used in the studied companies, conclusions can still be drawn that real options exists in wind power projects. The grants in the essay: Our hope, among other things, is that the essay will contribute to increased understanding for the use of real options in wind power projects. Proposals for future research: Our study deals with five real options. Trigeorgis (2005) describes eight real options in the article: Making Use of Real Options Simple: an overviewand applications into flexible/modular decision making. A study that includes all eight real options in wind power projects would be interesting. This is to investigate whether there are more real options than the three this study identifies in wind power projects.

Syftet med uppsatsen är att analysera hur de specifika variablerna samverkar i investeringsanalysen bakom strategiska investeringar vid beslutsfattandet. Studien är inriktad mot den dominerande företagssektorn små och medelstora företag, vidare görs en jämförelse mellan yngre och mognare företag. För att analysera detta har en kvantitativ datainsamlingsmetod använts i form av en enkätundersökning. Forskningsfilosofin som är applicerad är deduktiv, för att på så sätt kunna dra generaliseringar i slutsatserna utifrån den empiriska analysen och fullfölja studiens syfte. Studien är baserad utifrån beslutsteori där hantering av risk och osäkerhet har en central roll. Inom området för beslutsfaktorer tillämpas även den situationsanpassade teorin. Intressentteorin och den neoklassiska ekonomiska teorin har även använts som bas.Resultatet uppvisar att det finns ett flertal samband mellan de specifika variablerna, SME-företagens livscykelstadier och investeringsanalysen. Vidare har markanta skillnader identifierats vid investeringsanalysen mellan de yngre och mognare företagen. I analysen illustreras detta med hjälp av statistiska analystabeller.Denna studie skiljer sig från tidigare forskning i ett flertal aspekter. Studien har identifierat ett gap mellan de praktiska tillämpningarna och teorin. Dessutom har studien ett extra brett omfång gentemot tidigare forskning. För att utöver detta även skapa en djupare insikt över företagets attityder och tillämpning av diverse metoder har undersökningen även jämfört yngre och mognare företags förhållningsätt i investeringsanalysen. Denna uppsats kan vara av värde för landets välfärd genom att öka förståelsen för SME-företagens förhållande i samband med strategiska investeringar. / The purpose of this paper is to analyse how specific variables interact the investment analysis behind the investments, in the decision-making process. This study is focused on small and medium sized enterprises where a comparison will be made between young and mature enterprises. To examine this, a quantitative data collection method has been adopted, with the use of a questionnaire survey. A deductive research philosophy has been applied for this study in order to draw general conclusions based on the empirical analysis and fulfil the purpose of this study. This study is based on decision theory where the management of risk and uncertainty play a central role. In the area of decision factors the contingency-theory is also applied. The stakeholder theory and the neoclassical economic theory have also been used as a base.The findings show that there are numerous links between the specific variables, SME business lifecycle stages and the investment analysis. Furthermore, clear differences have been identified in the investment analysis between the young and the more mature enterprises. The analysis is illustrated by means of statistical analysis tables.This research differs from previous studies in several aspects. The study has identified a gap between the practical applications and theory. Moreover, the study has an extra wide range over previous research. To go beyond and create a deeper understanding of the enterprises attitude and application of various methods in their continuous development, the study also compared younger and more mature enterprises approaches to the investment analysis. This paper can be useful for the country's welfare by increasing the understanding of SMEs relationship in the context of strategic investments.

Investeringar är grunden i ett företag och därmed är investeringsprocessen ett intressant fenomen att titta närmare på. Efter att ha studerat litteratur och tidigare forskning, som tar upp problematiken i investeringsprocessen, framkom att beslutsfattarens roll är en väsentlig del vid investeringsprocessen. Studien behandlar både beslutfattarens bakgrund och val som påverkar investeringsbeslutfattande i restaurangsbranschen, beslutfattarens bakgrund och val behandlas som påverkande respektive förklarande faktorer. Studien syftar på att ta reda på om och i vilken omfattning belutfattarens bakgrund påverkar sina val i investeringsprocessen. Genom att tillämpa en kvantitativ metod i form av en enkätundersökning lyftes beslutsfattarens bakgrund och investeringsprocess fram. Utifrån enkätundersökningen gjordes en statistisk analys för att hitta eventuella samband mellan de påverkande samt förklarande faktorerna. Resultatet av enkätundersökningen och statistiska analysen visade att det fanns starka samband mellan faktorer såsom kön, ålder, investeringsrutin, kalkylanvändning, utbildningstyp och utbildningsnivå. Detta bekräftar tidigare forskning och teorier om beteendeinriktad investeringsbeslutfattande.

The matter of sustainable thinking today permeates the Western world and is now widely agreed to recognize three aspects; environmental, economic and social sustainability. Due to limitations of resources and knowledge, this concept is considerably less widespread in developing countries. Many sustainable ventures in developing countries aim to unite the three aspects and solve the pressing issue of unsustainable development, but evaluating these projects has proven to be a challenging task and tools for systematic analysis are missing. Furthermore, current frameworks lack in guidance on what tools to use for the assessment of the three sustainability aspects. This research aims to investigate how established models can be applied and what obstacles that occur when evaluating a sustainable venture in a developing country. To do this, a case study is performed on Zanzibar, Tanzania where the Swedish waste management company Zanrec is considering pursuing a sustainable venture of starting up a biodiesel production from used cooking oil. This research therefore also provides Zanrec with an evaluation of the project’s alignment with the sustainability concept. To reach the purpose of this study, two established models for evaluation are chosen; LCA for the environmental aspect and the payback method as capital budgeting tool for the economic aspect. No established evaluation tool is used for the social aspect; instead the social implications of the project are analyzed in a discussion. It is found that the applicability of the chosen tools for evaluating the biodiesel production project is highly affected by the contextual setting of a developing country. The major finding is that these tools have varying flexibility in adapting to the main challenge, which is the lack of documentation and available data. LCA is found to be a complicated and rigid tool to use if fully abiding by its associated ISO standards. Without an existing LCA knowledge base and any guidelines on how to manage missing data, the LCA tool is deemed to not reach its full potential in a developing country at this stage. The payback method is proven to be a more flexible tool that to a higher degree can be adapted to fit the setting and the requirements of the commissioner. The project’s impact areas related to the social aspect are found to be few, but to evaluate the extent of these, further research is required. / Hållbart företagande genomsyrar idag västvärlden och det är nu allmänt vedertaget att konceptet täcker in tre aspekter; miljömässig, ekonomisk och social hållbarhet. På grund av begränsningar i resurser och kunskap är hållbarhetskonceptet långt ifrån lika utbrett i utvecklingsländer. Hållbarhetsprojekt i utvecklingsländer syftar till att förena de tre aspekterna och lösa den rådande frågan om ohållbar utveckling, men det har visat sig vara en utmaning att utvärdera dessa projekt och det saknas verktyg för systematisk analys. Vidare saknar existerande modeller riktlinjer om vilka verktyg som bör användas i utvärderingen av de tre hållbarhetsaspekterna. Studien syftar till att undersöka hur etablerade utvärderingsverktyg kan tillämpas för att utvärdera ett hållbarhetsprojekt i ett utvecklingsland samt vilka hinder som detta innefattar. En fallstudie har därför utförts på Zanzibar i Tanzania, där det svenska  avfallshanteringsföretaget Zanrec överväger att genomföra ett hållbarhetsprojekt som ämnar att upprätta produktion av biodiesel från använd matolja. Därigenom syftar denna undersökning även till att förse Zanrec med en utvärdering av projektet med avseende på de de tre hållbarhetsaspekterna. I denna studie används två etablerade modeller; LCA för miljöaspekten och payback-metoden som investeringskalkylsmodell för den ekonomiska aspekten. Inget etablerat utvärderingsverktyg används för den sociala aspekten vars påverkan av projektet istället analyseras i en diskussion. Det har visat sig att tillämpbarheten av de valda verktygen för utvärdering av  biodieselprojektet i hög grad påverkas av de kontextuella förutsättningarna i ett utvecklingsland. Den viktigaste slutsatsen är att dessa verktyg har varierande flexibilitet i att anpassa sig till bristen på dokumentation och tillgänglig data, vilket är den största svårigheten. LCA har bedömts vara ett komplicerat verktyg med fasta ramar vid användning i enlighet med dess ISO-standarder. Utan en befintlig kunskapsbas kring LCA och riktlinjer för hur man ska hantera avsaknad av data, anses LCA-verktyget i dagsläget inte nå sin fulla potential i ett utvecklingsland. Paybackmetoden har visat sig vara ett mer flexibelt verktyg som i högre grad kan anpassas efter rådande förutsättningar och kraven hos uppdragsgivaren. Endast ett fåtal inverkansområden med anknytning till den sociala aspekten har identifierats som påverkade av detta projekt, men för att utvärdera omfattningen av dess påverkan behövs vidare studier.

Background and problem: There is a need for more research that is specific to a particular branch of industry when it comes to capital budgeting. Especially when it comes to mapping how companies within the Swedish forest industry proceed capital budgeting when investing in tangible fixed assets. The reason for this is that the research regarding the subject within the industry is either made abroad, focusing only on a few companies or excluding the non-financial considerations that are made during the capital budgeting process. It is not reasonable to not take these considerations into account, due to the fact that it has a great impact on the capital investment decision. Besides this, it is through both the financial and the non-financial consequences that the complex reality can be captured. In other words, capital budgeting can only be studied in large when including both financial and non-financial considerations at the same time as there is a need to delimit the research to one industry and one country.  Purpose: The purpose of this study is to map how companies within the Swedish forest industry handle capital budgeting when investing in tangible fixed assets. The mapping will be done by determining which calculation methods that are frequently used and what financial and non-financial considerations that are made. The purpose is also to define the reasons as to why the Swedish forest companies prioritize precisely these considerations when managing capital budgeting. The ambition is to make sure that the research’s conclusions depict capital budgeting in the industry and trought that contribute to a greater understanding of the practical application of capital budgeting within Swedish forest industry.  Method: The thesis is primarily described as a qualitative research that is based on interviews. The empirical data is mostly gathered through semi structured interviews with respondents from different Swedish forest companies and the interviews are supplemented with information from various websites, annual reports and internal documents.  Conclusions: Swedish forest companies are influenced by a number of factors which in turn affects how they handle capital budgeting when investing in tangible fixed assets. The financial considerations are mainly found through the usage of different investment calculation methods, where the payback method followed by the net present value method are most commonly used. The non-financial considerations are mainly characterized by industry specific conditions together with a focus on environment, security and competitiveness.

Bakgrund och problem: Investeringar inom offentliga verksamheter skiljer sig mot privata verksamheter vilket grundar sig i dess icke-vinstdrivande karaktär. Detta påverkar även investeringsbedömningen. Tidigare forskning har visat att offentliga verksamheter inte använder företagsekonomiska investeringskalkyler. Istället prioriteras kvalitativa aspekter vid beslutsfattandet, trots att investeringskalkyler benämns som viktiga för välgrundade beslut. Vidare finns det inte heller några specifika kvalitativa faktorer som är särskilt framträdande i offentliga verksamheter.  Syfte: Syftet studien är undersöka och få förståelse för investeringsbedömning i offentliga verksamheter. Studien syftar därtill att identifiera vilka beslutsunderlag som användes vid beslutet av att investera i megaprojekt.  Metodval: Studien är av ett kvalitativ slag med en abduktiv forskningsansats. Vidare är det en enfallsstudie av Region Kronoberg där den empiriska insamlingen framförallt baseras på semistrukturerade intervjuer men även dokumentgranskning.  Slutsatser: Investeringskalkyler används inte som ett beslutsunderlag i offentliga verksamheter. Istället anses icke-finansiella aspekter viktigare där kvalitativa beslutsunderlag som omfattar säkerhetsaspekter, tillväxtrelaterade behov och förbättring av service visat sig vara avgörande. / Background and problem: Investments in the public sector are different from the private sector because of their nonprofitable character. This further affects the evaluation of capital investments. Previous research has proved that public organizations do not use traditional investment calculations. Instead they prioritize qualitative aspects in decision-making, despite the methods being considered essential for making good decisions. However there are no specific qualitative factors that are particularly prominent. Purpose: The purpose of the study is to understand the use of capital budgeting techniques in the public sector. Moreover, the study aims to identify what the decision of investing in megaprojects is based on.   Method: The study is of a qualitative nature, with an abductive research approach. Furthermore it is a case study of Region Kronoberg where the empirical material primarily is based on semi-structured interview but also from document review. Conclusions: Traditional capital budgeting methods proved not to be used in the public sector. Insted, simple calculations where used in order to evaluate if it was possible to finance the investment. Additionally, the study proved that the public sector prioritized qualitative aspects such as healthy and safety issues, growth-related needs and service enhancement.

[pt] Essa tese apresenta uma abordagem alternativa para orçamento de capital, denominada Métodos Modificados de Avaliação de Projetos de Investimentos em Ambiente Fuzzy, para avaliação de projetos em condições de incerteza. O desenvolvimento da abordagem proposta está dividido em duas fases: na primeira fase, é estabelecido um modelo determinístico generalizado que prevê explicitamente a utilização dos custos de oportunidade associados com os fluxos de caixa intermediários de um projeto de investimento empresarial. Os pressupostos implícitos dos métodos modificados da taxa interna de retorno e do valor presente líquido são incluídos nos métodos do índice de lucratividade e do tempo de retorno do investimento total. Os indicadores resultantes são o índice de lucratividade modificado e o tempo de retorno do investimento modificado. Essa abordagem unificada tem a propriedade de coincidir as decisões de aceitação / rejeição de projetos de investimentos de mesmos horizontes de vida e escalas com as do valor presente líquido modificado e, portanto, maximizam a riqueza do acionista. Na segunda fase, números fuzzy triangulares são utilizados para representar as incertezas das variáveis de um projeto de investimento: os fluxos de caixa, as taxas de financiamento e de reinvestimento e a taxa de desconto ajustada ao risco. Os indicadores fuzzy resultantes são o valor presente líquido modificado, a taxa interna de retorno modificada, o índice de lucratividade modificado e o tempo de retorno do investimento modificado. A aplicação de custos de oportunidades e de critérios difusos para a atribuição dos valores das variáveis permite obter resultados mais realistas e compatíveis com as condições de mercado. Devido à complexidade dos cálculos envolvidos, novas funções financeiras de uso amigável são desenvolvidas utilizando Visual Basic for Applications do MS-Excel: três, para avaliação de projetos em condições de certeza (MVPL, MIL e MTRI) e quatro para avaliação em condições de incerteza (MVPLfuzzy, MTIRfuzzy, MILfuzzy e MTRIfuzzy). A principal contribuição dessa tese é a elaboração de uma nova abordagem unificada para orçamento de capital em condições de incerteza que enfatiza os pontos fortes dos métodos modificados do valor presente líquido e da taxa interna de retorno, enquanto contorna os conflitos e as desvantagens individuais dos métodos convencionais. Os resultados mostram que os métodos propostos são mais vantajosos e mais simples de se utilizar que outros métodos de avaliação de investimentos em condições de incerteza. / [en] This thesis presents an alternative approach to capital budgeting, named Fuzzy Modified Methods of Capital Budgeting, for evaluating investment projects under uncertainties. The development of the proposed approach is divided into two phases: in the first stage, a general deterministic model that explicitly provides for the use of the opportunity costs associated with the interim cash flows of a project is established. The implicit assumptions of the modified internal rate of return and modified net present value methods are included in the index of profitability and in the total payback period. The resulting indicators are the modified index of profitability and the modified total payback period. This unified approach has the property to match the decisions of acceptance / rejection of investment projects with same horizons of life and same scales with the decisions of the modified net present value method and therefore maximize shareholder wealth. In the second phase, triangular fuzzy numbers are used to represent the uncertainties of the project variables: cash flows and reinvestment, financing and risk-adjusted discount rates. The resulting indicators are the fuzzy modified net present value, the fuzzy modified internal rate of return, the fuzzy modified index of profitability and the fuzzy modified total payback period. The application of opportunity costs and fuzzy criteria for determining the variables allows obtaining more realists and consistent results with the market conditions. Due to the complexity of the calculations involved, new MS-Excel financial functions are developed by using Visual Basic for Applications: three functions for evaluating projects under conditions of certainty (MVPL, MIL and MTRI) and four functions for evaluating projects under uncertainties (MVPLfuzzy, MTIRfuzzy, MILfuzzy and MTRIfuzzy). The main contribution of this thesis is to develop a unifying approach to capital budgeting under uncertainty that emphasizes the strengths of the methods of modified net present value and modified internal rate of return, while bypassing the individual conflicts and drawbacks of the conventional methods. Results show that the proposed methods are more advantageous and simpler to use than other methods of investment appraisal under uncertainties.

The purpose of this project is to describe and explain the foreign investment decision process in the uncertain and turbulent environment of transition economy. By getting an in-depth understanding of how decision-making works in the environment of transition economy, the study intends to contribute to the development of business administration theory in the area of foreign investment decision-making, particularly its application in the turbulent and uncertain world. Theoretical ‘blocks’, elaborated on the basis of literature study, include the following concepts: the framework of transition economy; initial motivation (or reasons) of companies to make foreign direct investments (FDI); investigation of the investment climate and information collection methods; project evaluation and investment decision criteria; risk assessment factors and risk reduction measures. Transition economy is defined in the study as ‘a non-planned, non-market economy’ where the new emerging market institutions coexist with the bureaucracy and hierarchy inherited from the old administrative system. Investment projects, therefore, should probably be seen as being under institutional influence from both the local (i.e. transition economy) and the Western investor’s home country environments. The empirical data presented in the paper also shows that it is necessary to establish the relevant economic, legal, political and social institutions in order to attract FDI. The study further includes the analysis of the main components and features of transition economies and their influence on FDI decision-making. One of the results of the study is that FDI decision-making in transition economies is largely consistent with different theoretical approaches suggested in the literature. On the other hand, the empirical support obtained for different theoretical approaches is often questionable and opened to alternative interpretations. The presented project suggests that theoretical perspectives do not preclude each other, but rather have a complimentary character. The study attempts to contribute to the mainstream FDI theories through a firm-level approach based on the case studies. Two in-depth case studies are presented in the paper: Ericsson’s direct investments in Russia and Vattenfall’s investments in the Baltic countries. A formal questionnaire based on the parameters of theoretical ‘blocks’ was created and 25 top executives from Ericsson and Vattenfall who participated in FDI decision-making were surveyed. The empirical investigation took place during the period 1997 - 1998 with partial updating of the cases during the year 2000.  The study shows that where companies confront stable environments, investment decision routines and procedures will be less necessary and important than where market uncertainty is high. The strong appreciation of the local business partners for properly done investment calculations increases the importance of capital budgeting in transition economies more than in developed market economies. Besides, traditional investment appraisal methods provide managers with an ‘objective’ or ‘materialistic’ feedback for the decision-making in the rapidly changing uncertain environment. On the other hand, the study emphasises the importance of strategy over financial techniques and argues that FDI decisions in transition economies should be based on methods consistent with the company’s long-term objectives. In case of permanent changes, new approaches as well as better co-ordination of traditional techniques with strategic, political, historical, geographical and cultural issues are required. Ericsson’ s direct investments in Russia are presented in the paper in connection with other factors: the company’s historical involvement in Russia, marketing strategy, human resource development, privatisation and restructuring of the telecommunication sector in Russia, etc. Nordic Electric Power Co-operation (Nordel), the EU’ s decision in 1996 to create an internal electricity market in Europe, Baltic ring study, future plans to privatise the energy companies in the Baltic countries, etc., are the framework to present the second case. An application of project evaluation and risk assessment techniques for broader and more complicated environments shows that investment decision-making is probably as much, if not more, a social, political and cultural technology as an economic one. The study argues then that the rational choice decision-making model often co-exists with alternative models elaborated in social science - limited rationality, political and garbage can. According to the empirical data, the investment decisions are largely based on intuition, business experience and judgement, personal contacts with representatives from the local country, and these investment criteria are inevitable and acceptable in a situation of total chaos and permanent change. The right chosen partner, for example, is one of the major criteria for the success of the investment project in a transition economy. One of the outcomes of this study is that the revitalised form of investment decision-making will differ rather markedly from much of what has gone before: less emphasis on the quantitative aspects of capital budgeting, more on the qualitative aspects of companies and investment environment. The project also argues that determinants, approaches and criteria of investment activity in transition economies are largely consistent with patterns observed in other parts of the world. A few specific environmental conditions of transition economies, however, are shown in the study to affect the pattern of FDI decision-making. The level of turbulence is still different compared to the developed market economies due to uncertainties and unpredictibilities associated with environment of transition economies. Other major differences are the large power distance with authoritarian leadership, strong hierarchy and bureaucracy as well as the vital role of personal contacts in transition economies. It is not clear, however, if these features of transition economies should be seen as inherited from the past communist system or as an alternative way to organise the economic actors through networks, a way that is natural and appropriate for the majority of Asian societies.