Question

ptown Promotions has three divisions. As part of the planning process, the CFO requested that each division submit its capital budgeting proposals for next year. These proposals represent positive net present value projects that fall within the long-range plans of the firm. The requests from the divisions are $4.2 million, $3.1 million, and $6.8 million. For the firm as a whole, management has limited spending to $10 million for new projects next year even though the firm could afford additional investments. This is an example of:a.scenario analysis.b. sensitivity analysis.c. an operating leverage application.d. soft rationing.e.hard rationing.

Answer 1

Answer:

d. soft rationing

Explanation:

The cap of 10m comes from a firm decision it is not for inhability to raise funds or at least there is no information available that leads to think that.

The reasoning behind this cap may be:

• to save for future scenarios that may have better yield
• Increases in the opportunity cost of the capital

Remember:

Hard rationing comes fro mexternal, because there is more dificult to chance the reason from which third parties prevents a company to raise funds

While sof rationing may change with enought leverage in the company's decision making