11.6 Constraints on Borrowing and Selecting Projects for the Portfolio
Although it would be nice to have access to unlimited amounts of funds so that a company could fund all positive NPV projects, the practical side of capital budgeting is that there are limited funds and a company can thus accept only a limited number of projects. A company must ration its capital among the available positive NPV projects. Capital rationing is the term we use for picking projects when a company has constraints on the amount of available capital. How do we select which projects to accept among all the projects with positive NPVs when capital is constrained? The choice is quite simple: take the set of projects that has the highest combined NPV without exhausting ...
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