Question
What is capital rationin? Explain the process of capital rationing with suitable example.
Answer :
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Capital rationing refers to the process of allocating limited financial resources among competing investment projects when a firm does not have sufficient funds to undertake all desirable projects. In financial management, it is a situation where a company faces a constraint on the amount of capital available for investment and must prioritize projects based on their potential returns, risks, and strategic importance. The concept arises because resources are scarce, and firms aim to maximize shareholder wealth by investing in projects that yield the highest return per unit of capital invested. Capital rationing can be either hard, where the company has an absolute limit on funds due
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