Brubaker & Goss has received requests for capital investment funds for next year from each of its five divisions. All requests represent positive net present value projects. All projects are independent. Senior management has decided to allocate the available funds based on the profitability index of each project since the company has insufficient funds to fulfill all of the requests. Management is following a practice known as:
A) scenario analysis.
B) sensitivity analysis.
C) leveraging.
D) hard rationing.
E) soft rationing.

Question

Quizplus · Accepted Answer

The management is following a practice known as soft rationing, which is a situation where the company restricts funds for investment projects based on some criterion, in this case, profitability index, due to limited funds. Soft rationing is a strategy that helps companies allocate resources in the most effective way possible while ensuring that they invest in the projects that can generate the most significant returns.

Brubaker & Goss Has Received Requests for Capital Investment Funds