Understanding Capital Rationing in Corporate Finance

Very Easy Capital Budgeting Capital Rationing

In capital budgeting, organizations often face constraints on the amount of capital they can allocate for new projects. This is known as capital rationing. Given the situation, which of the following statements best describes the concept of capital rationing?

Capital rationing occurs when a firm can fund all positive NPV projects but chooses not to.

Capital rationing refers to a situation where a company has limited funds and must prioritize which projects to undertake.

Capital rationing is when a firm lacks viable investment opportunities.

Hint

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