Capital Rationing Occurs When

question 28

Multiple Choice

Capital rationing occurs when

• A) Expected cash inflows do not materialize when the project is implemented
• B) There are too few investment opportunities that can match or exceed the hurdle rate
• C) Poor investment decisions cause limited resources to be spread thinly among the several projects undertaken
• D) There are more investment opportunities meeting the hurdle rate than can be undertaken by the company
• E) Sufficient funds for a capital investment cannot be obtained from a single source

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Definitions:

Quick Ratio

A measure of a company's capacity to meet its short-term liabilities with its most liquid assets.

Liquidity Ratio

A financial metric used to determine an entity's ability to pay off its short-term debts with its most liquid assets, indicating financial health.

Current Ratio

A financial metric indicating a firm's capacity to meet its immediate financial liabilities with its present assets.

Net Cash

The amount of cash available after deducting liabilities, often considered in evaluating a company's liquidity.