Soft capital rationing may be beneficial to a firm if it:
A) reduces a firm's taxes.
B) weeds out proposals with weaker or biased NPVs.
C) allows managers to select their favorite projects.
D)lowers the cost of capital.

Question

Quizplus · Accepted Answer

Soft capital rationing involves setting a limit on the amount of funds available for investment, but this limit can be flexible and adjusted based on the quality of investment proposals. By weeding out weaker or biased NPVs, the firm can ensure that its capital is invested in the most profitable projects, which can ultimately enhance the firm's value. Soft capital rationing may not necessarily reduce a firm's taxes, and allowing managers to select their favorite projects may lead to biases or poor investment decisions. Soft capital rationing may also not necessarily lower the cost of capital.

Soft Capital Rationing May Be Beneficial to a Firm If