Soft capital rationing may be beneficial to a firm if it:
A)Reduces a firm's interest expense
B)Weeds out proposals with weaker or biased NPVs
C)Allows managers to select their favourite projects
D)Increases funds to be used for other purposes

Question

Quizplus · Accepted Answer

Soft capital rationing refers to a situation where a firm chooses to limit its investment projects voluntarily. This can help weed out proposals with weaker or biased NPVs, ensuring that funds are allocated only to the most profitable projects. It can also make managers more judicious in their investment selections, leading to better overall decision-making. However, it may not necessarily reduce interest expense or increase funds for other purposes, and it should not be used to allow managers to select their favorite projects over more profitable ones.

Soft Capital Rationing May Be Beneficial to a Firm If