Understanding Capital Rationing in Capital Budgeting

Very Easy Capital Budgeting Capital Rationing

In capital budgeting, organizations often face limitations in available resources when evaluating multiple investment opportunities. When a firm limits its capital expenditure due to budget constraints, this process is known as capital rationing.

Which of the following statements best describes the primary reason firms might engage in capital rationing?

To maximize the overall value of the firm by selecting the most profitable projects.

To avoid over-leveraging by minimizing debt consumption.

To manage risk by limiting investment in uncertain projects.

Hint

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