When a firm cannot invest in every positive NPV project because of limited funds,this is known as:

Question

Quizplus · Accepted Answer

Capital rationing is the practice of limiting the amount of funds available for investment in projects, despite the presence of multiple potential projects with a positive net present value (NPV). This is typically done when a firm has limited resources, such as cash or borrowing capacity, or wants to maintain a certain level of financial stability or risk profile. Capital budgeting is the overall process of assessing and selecting investment opportunities, whereas capital investing refers specifically to the act of allocating funds to specific projects. Capital financing, on the other hand, refers to the methods and sources a firm uses to raise funds for investment or operational purposes.

When a Firm Cannot Invest in Every Positive NPV Project