If a firm accepts less than all of its prospective projects with positive NPVs when evaluated at their own risk-adjusted costs o

Question

3 years ago

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If a firm accepts less than all of its prospective projects with positive NPVs when evaluated at their own risk-adjusted costs o

f capital and those mutually exclusive projects with the highest positive NPVs, then it is said to be employing capital rationing. True or false

Business

1 answer:

gtnhenbr [62] · Answer 1 · 2021-12-12T15:21:00+03:00

Answer: True

Explanation:

Yes, the given statement is true that the employing capital rationing is one of the process in which it placing some restriction on the investment amount of the project in an organization.

In the capital rationing strategy, if the company accepts less amount from all its prospective projects along with some positive net profit value (NPVs) the it is evaluated on the basis of their own risk.

The employ capital rationing helps in making various types of decisions related to investment for the company and in this system only limited projects are taken due to the limitation of the resources.

Therefore, The given statement is true.