A fiRm Which Is Faced with Hard Rationing

question 75

Multiple Choice

A firm which is faced with hard rationing:

• A) Has more capital funds available than it has positive net present value projects and thus must decide what to do with the excess funds.
• B) Allocates a fixed amount of capital funds to each of its divisions on an annual basis.
• C) Must decide how to allocate its limited capital funds among numerous positive net present value projects.
• D) Must decide how to allocate its limited capital funds among various business units.
• E) Has no capital funds available to finance a positive NPV project.

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Definitions:

Inventory Period

The average time it takes for inventory to be sold and replaced over a given period.

Cost of Goods Sold

This refers to the direct costs attributable to the production of the goods sold by a company, including materials and labor.

Inventory Turnover

A measure of how many times a company's inventory is sold and replaced over a specific period, indicating the efficiency of inventory management.

Receivables Turnover

A financial metric that measures how efficiently a company collects cash from its credit sales by calculating the number of times receivables are turned over during a period.