The Present Chapter
It discusses the capital budgeting practices under capital rationing.
Capital rationing implies investment in projects within limited capital resources. It is the process of allocating money among different projects, where the amount of money to be invested is limited. Companies ration their capital and investments among different opportunities as countries use rationing of food. In case of capital rationing, the company may not be able to invest in all profitable projects. Therefore, the key to decision making under capital rationing is to select those projects that maximize the total net present value given the capital budget limit.
Capital rationing provides ...