The situation where a firm accepts projects to the point where the return on the last project accepted is just equal to or greater than the firm's required rate of return (IRR ≥ r at the margin)is called capital rationing.

Question

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Capital rationing refers to a situation where a firm limits its investments or projects due to external financial constraints or internal budgeting controls, not to the point where the return on the last project accepted is just equal to or greater than the firm's required rate of return.

The Situation Where a Firm Accepts Projects to the Point