Explain the reasons for capital rationing.
Explain the reasons for capital rationing.
Homework Answers
There are endless opportunities for businesses but their capital is limited and so the firms have to apply capital rationing techniques so as to select the most profitable investment proposals.
The first reason is that companies want to avoid direct cause and indirect cost of raising new capital. They do not have sufficient managerial marketing all technical staff to implement all the profitable projects. Companies may also like reliable forecasts and so they filter out the worst projects by applying capital rationing techniques.
Akron Transportation Service is operating under capital rationing, and expects to be in a capital rationing...
Akron Transportation Service is operating under capital rationing, and expects to be in a capital rationing environment for 3 years. The cost of capital is 10%. A $100,000 capital investment will provide cash flows of $30,000 at the end of each year for 5 years. Funds not used immediately can be invested until the end of the capital rationing period at a 20% annual return. Funds available at the end of the first year can be invested at 18% until...
capital rationing is
capital rationing is
Capital rationing could affect the returns to shareholders. An ethical dilemma is faced by the executives...
Capital rationing could affect the returns to shareholders. An ethical dilemma is faced by the executives of the business. Capital rationing could affect the stakeholders (other than the shareholder) of the business. Should capital constraints modify the principle of maximizing shareholder wealth? Requirements: 250 words
.The presence of efficiency, minimum and union wages A. cannot explain job rationing because they are...
.The presence of efficiency, minimum and union wages A. cannot explain job rationing because they are a natural part of the economy. B. does not effect job rationing because they affect only the amount of job search. C. can explain job rationing because they raise the real wage rate above equilibrium. D. can explain job rationing because they lower the natural unemployment rate. E. can explain job rationing because they lower the real wage rate below equilibrium.
Write short notes on the following concepts Capitalization Capital market Capital market line Capital rationing Capital...
Write short notes on the following concepts Capitalization Capital market Capital market line Capital rationing Capital structure (f )Cash budget Payback rule Perpetuity Preferred stocks Primary issue Principle agent problem Profitability index Return on investments Re-purchase agreement Salvage value Secondary issue Secondary market
QUESTION 1 The following information relates to three possible capital expenditure projects. Because of capital rationing,...
QUESTION 1 The following information relates to three possible capital expenditure projects. Because of capital rationing, only one project can be accepted. The following information relates to three possible capital expenditure projects. Because of capital rationing, only one project can be accepted. Project A Project B Project C Initial cost R400 000 R460 000 R360 000 Expected life 5 years 5 years 4 years Expected scrap value R20 000 R30 000 R16 000 Expected net cash inflows: R R R...
When do you use Profitability Index (PI) to evaluate projects? How? a. Under capital rationing; by...
When do you use Profitability Index (PI) to evaluate projects? How? a. Under capital rationing; by ranking projects from the highest PI to the lowest; b.For complementary projects; by ranking from the highest PI to the lowest; C.Under capital Rationing; by randomly choosing projects with any PI; d.For complementary projects; by randomly choosing projects with any PI;
Question 1010 pts Determining the optimal capital budget under the constraint of capital rationing generally means...
Question 1010 pts Determining the optimal capital budget under the constraint of capital rationing generally means we will not be able to finance all positive NPV project proposals (assuming the cost of all positive npv projects exceed the amount of financing) Group of answer choices True False
If projects are mutually exclusive a. they can only be accepted under capital rationing. b. the...
If projects are mutually exclusive a. they can only be accepted under capital rationing. b. the selection of one alternative precludes the selection of other alternatives. c. the payback method should be used. d. only the net present value method can be used.
Using the example of the gasoline market, explain how price acts as a rationing tool. Are...
Using the example of the gasoline market, explain how price acts as a rationing tool. Are there other ways to ration gasoline among consumers? Explain.
QUESTION 1 The following information relates to three possible capital expenditure projects. Because of capital rationing, only one project can be accepted. The following information relates to three possible capital expenditure projects. Because of capital rationing, only one project can be accepted. Project A Project B Project C Initial cost R400 000 R460 000 R360 000 Expected life 5 years 5 years 4 years Expected scrap value R20 000 R30 000 R16 000 Expected net cash inflows: R R R...
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