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Capital Rationing |
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Capital rationing Placing limits on the amount of new investment undertaken by a firm, either by using a higher cost of capital, or by setting a maximum on the entire capital budget or parts of it. Capital Rationing The act or practice of limiting a company's investment. That is, capital rationing occurs when a company's management places a maximum amount on new investments it can make over a given period of time. The two methods of capital rationing are forbidding investments over a certain amount or increasing the cost of capital for such investments. Capital rationing is most common when a company's previous investments have not performed well. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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| He concluded that R-VH is good for accept-reject type of projects, whereas D-L is good for mutually exclusive projects or in capital rationing situation. Successful financial managers must arrange funding from various sources, some of which are not traditional lenders; consider strict capital rationing for new capital projects; ally with partners to meet the company's strategic mission; and be prepared to motivate credit sources with equity sweeteners. |
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