What Is the Possible Cost of Capital Rationing

question 56

Multiple Choice

What is the possible cost of capital rationing?

• A) The firm may have excess fixed assets.
• B) The firm is likely to take too many risky projects.
• C) The firm may miss out on positive NPV opportunities
• D) The firm may have too high a cost of capital.

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Definitions:

Inventory Buildup

The accumulation of products or materials in excess of demand, often leading to increased storage costs and reduced cash flow.

Fixed Costs

Costs that remain constant regardless of the amount of goods produced or sold, including expenses like rent, salaries, and insurance.

Variable Inventory Costs

Variable inventory costs fluctuate with changes in production volume, including costs like raw materials and direct labor.

Special Order

A special order refers to a one-time or unusual request from a customer to purchase goods or services that differ from a company's regular offerings, often requiring unique pricing and production scheduling.