When ﬁrms do not have suﬃcient available ﬁnancing to invest in all of the positive net present value projects they have identiﬁed, _____ is (are) said to exist.
A) excess ﬁnancing
B) contingency options
C) strategic options
D) managerial options
E) capital rationing

Question

Quizplus · Accepted Answer

When a firm has identified positive net present value projects but does not have enough available financing to invest in all of them, it is said to be experiencing capital rationing. This is a situation where a company is unable to fund all of its attractive investment opportunities due to constraints on its access to external financing.

When ﬁRms Do Not Have Suﬃcient Available ﬁNancing to Invest