CAPITAL RATIONING - Accounts and Finance for Managers

The capital rationing means that selection of investment proposals with reference to capital budget by considering the financial constraints. The selection of the investment proposals should be to the tune of required NPV which the firm wants to earn during the future. Under the capital rationing, there are two stages involved viz

  1. Identification of the investment proposals
  2. Selection of investment proposals

The selection of the investment proposals are on the basis of Discounted cash flows method. The selection of the investment proposals are subject to two different categories viz indivisible and divisible. The investment which is wholly accepted or rejected due to decision criterion which is known as indivisible project but the divisible projects are able to either accept or reject in parts.


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