Asked by Brian Henry on May 04, 2024
Verified
A firm that cannot raise funds in the financial markets in order to finance positive NPV projects is said to face soft capital rationing.
Soft Capital Rationing
Internal constraints imposed by a company's management on the funds allocated for new investments, often due to budgetary constraints.
Financial Markets
Financial markets are platforms where individuals and entities can trade financial securities, commodities, and other fungible items of value at low transaction costs and at prices reflective of supply and demand.
NPV Projects
Projects that are evaluated based on the Net Present Value method, helping in deciding whether they contribute positively to the company's value.
- Acquire knowledge on the theory of capital rationing and how it influences the decision-making process related to project financing and selection.
Verified Answer
Learning Objectives
- Acquire knowledge on the theory of capital rationing and how it influences the decision-making process related to project financing and selection.
Related questions
A Firm That Faces Capital Rationing Must Select a Subset ...
When Firms Do Not Have Sufficient Available Financing to Invest ...
The Process by Which Management Allocates Available Investment Funds Among ...
A Measure of the Average Income as a Percent of ...
If a Division of a Firm Faces Soft Rationing, It ...