Question

A firm with limited dollars available for capital expenditures is subject to ________.

Answer 1

Capital expenditures are situation to Capital Rationing.

Capital rationing is the act of putting restrictions on the variety of recent investments or projects undertaken through an organization. that is done via enforcing a better cost of capital for funding attention or by way of putting a ceiling on specific quantities of finances.

Capital rationing is a method utilized by businesses or traders to restrict the number of initiatives they tackle at a time. If there may be a pool of to-be-had investments that might be all expected to be worthwhile, capital rationing enables the investor or commercial enterprise owner to pick the maximum profitable ones to pursue.

Single-period capital rationing takes place while there is a shortage of finances for one length only. Multi-period capital rationing is where there may be a scarcity of budget in a couple of periods.

Capital Rationing approach: together with net present price (NPV), inner price of going back (IRR), and Profitability Index (PI) Rank them based on diverse criteria, viz. NPV, IRR, and Profitability Index.

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