Asked by
Dhanraj Vansadia
on Dec 20, 2024Verified
Capital rationing may involve:
A) accepting projects with negative NPVs.
B) rejecting projects with positive NPVs.
C) limitations on the number of project proposals that are submitted for evaluation.
D) allocating available capital among all project proposals with positive NPVs.
Capital Rationing
The process of selecting the best projects for investment under conditions of limited resources, ensuring optimal utilization of capital.
Negative NPVs
Situations where the Net Present Value of an investment is less than zero, indicating that the project’s projected earnings, discounted back to the present value, are less than the initial investment, suggesting it may not be profitable.
Positive NPVs
Situations where the Net Present Value of an investment or project is greater than zero, indicating profitability.
- Grasp the significance of NPV and IRR in the context of selecting projects when faced with capital constraints.
Verified Answer
MT
Learning Objectives
- Grasp the significance of NPV and IRR in the context of selecting projects when faced with capital constraints.