Uptown 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, respectively. For the firm as a whole, Uptown Promotions is limited to spending $10 million for new projects next year. This is an example of:
A)scenario analysis.
B)sensitivity analysis.
C)determining operating leverage.
D)soft rationing.
E)hard rationing.

Question

Quizplus · Accepted Answer

This situation is an example of soft rationing, where a firm internally limits the amount of capital allocated to projects, despite having potentially profitable opportunities.

Uptown Promotions Has Three Divisions