Explore BrainMass
Share

Explore BrainMass

    Capital rationing

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Evaluating capital rationing
    --------------------------------------------------------------------------------
    Please explain how to evaluate a corporations capital rationing plan. How to determine if it is a good policy? And how to determine what better polcy to use.

    I'm looking for nuts and bolts, or better the logic and steps to follow that logic

    © BrainMass Inc. brainmass.com October 9, 2019, 5:54 pm ad1c9bdddf
    https://brainmass.com/business/working-capital-management/capital-rationing-72007

    Solution Preview

    Please explain how to evaluate a corporation's capital rationing plan. How to determine if it is a good policy? And how to determine what better policy to use.

    Capital rationing
    Definition

    Limiting a company's new investments, either by setting a cap on parts of the capital budget or by using a higher cost of capital when weighing the merits of potential investments. This might happen when a company has not enjoyed good returns from investments in the recent past. Capital rationing also could take place if a company has excess production capacity on hand.
    http://www.investorwords.com/729/capital_rationing.html

    Capital rationing occurs when a company chooses not to fund all positive NPV projects.
    The company typically sets an upper limit on the total amount of capital expenditures that it will make in ...

    Solution Summary

    This discusses the concepts related to Capital rationing

    $2.19