1.) Capital rationing is described as: Selecting only the one opportunity with a
ID: 2644337 • Letter: 1
Question
1.)
Capital rationing is described as:
Selecting only the one opportunity with an expected return greater than the required return by the largest spread.
Being allocated exactly enough capital to undertake all value creating opportunities.
Having less capital than could be invested in value creating opportunities.
Having as much capital as can be profitably investment in value creating opportunities.
2.)
The ____ method indicates whether value is expected to be created for shareholders
IRR and PBP
PI
Both PI and NPV
NPV
a.Selecting only the one opportunity with an expected return greater than the required return by the largest spread.
b.Being allocated exactly enough capital to undertake all value creating opportunities.
c.Having less capital than could be invested in value creating opportunities.
d.Having as much capital as can be profitably investment in value creating opportunities.
Explanation / Answer
1.
Having less capital than could be invested in value creating opportunities.
Capital Rationing acts as a restriction on the number of projects a company can undertake at the same time. It is achieved by increasing the cost of capital so that required rate of return also increase as a result.
2. C. Both PI and NPV
Both PI and NPV method find the profitability of a project by analysing outflow and Inflow of the project. So, by comparing Inflow and Outflow Both PI and NPV indicated whether value is expected to create for shareholders.
c.Having less capital than could be invested in value creating opportunities.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.