A firm may adopt capital rationing because

Question

Quizplus · Accepted Answer

Capital rationing is a situation where a firm limits its investment in new projects due to inadequate funds. This may be caused by a variety of reasons, including a reluctance to use external sources of financing, such as debt or equity. By limiting investments, a firm can avoid the risks associated with taking on too much debt or diluting its ownership by issuing more equity. Thus, option A is the best choice. Options B and C may be a result of capital rationing but do not necessarily explain the reason for adopting it. Option D is incorrect because not all the options are true.

A Firm May Adopt Capital Rationing Because