Capital rationing
A)exists when a company sets an arbitrary limit on the amount of investment it is willing to undertake,so that not all projects with an NPV higher than the cost of capital will be accepted.
B)generally does not permit a company to achieve maximum value.
C)seems to occur quite frequently among corporations.
D)All of the above

Question

Quizplus · Accepted Answer

Capital rationing occurs when a company sets a limit on the amount of investment it is willing to undertake, which forces the company to prioritize which projects to invest in even if there are other projects with a higher NPV. As a result, it does not permit the company to achieve maximum value. This phenomenon is quite common among corporations. Therefore, all of the above options are correct.

Capital Rationing