Question

15. How would projects be ranked under capital rationing? Does capital
rationing lead to sub-optimal investment decisions?​

Answer 1

Answer:

ADVERTISEMENTS: Selection of project depends on two steps: (i) Ranking the projects according to the Profitability Index (PI) or Net Present Value (NPV) method; (ii) Selecting projects in descending order of profitability (until the funds are exhausted).

Answer 2

Answer:

Capital rationing is the act of placing restrictions on the amount of new investments or projects undertaken by a company. This is accomplished by imposing a higher cost of capital for investment consideration or by setting a ceiling on specific portions of a budget.

Explanation:

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