Question

In Capital Budgeting, the term Capital Rationing implies that ___________.

• A. no retained earnings available
• B. limited funds are available for investment
• C. no external funds can be raised
• D. no fresh investment is required in current year

Answer 1

Answer: (B)

limited funds are available for investment

Capital Rationing is the act of placing restrictions on the amount of the new investments or projects undertaken by a company. This is accomplished by imposing a higher cost of capital for the investment consideration or by setting a ceiling on the specific portions of a budget.