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Capital rationing is a situation in which a firm is unable to obtain all of the capital it needs to finance its investment projects. This can occur when there is a shortage of available capital, or when the cost of capital is high.
Capital rationing is a situation in which a firm is unable to obtain all of the capital it needs to finance its investment projects. It can be caused by a shortage of available capital, a high cost of capital, or high interest rates. Capital rationing can have a number of negative effects on firm performance, including limited investment, a higher cost of production, and lower returns on investment.
What is capital rationing with an example?
Capital rationing limits investments due to scarce funds. For example, a company with $1 million may choose only the most profitable projects if it needs $2 million for all options.
What does capital rationed mean?
It means a company has limited funds and must prioritize which projects to invest in.
Which technique is used for capital rationing?
Techniques include Profitability Index (PI), Net Present Value (NPV), and Internal Rate of Return (IRR).
What is rationing of credit with an example?
It’s when banks limit lending despite demand. For example, a bank might restrict loans to risky sectors.
What are the advantages of capital rationing?
It helps control spending, reduce risks, and ensures only high-return projects are funded.
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