Part 2

Question 1

capital rationing arises

Answer 1

Capital rationing arises when a firm cannot or chooses not to fund all positive NPV projects, usually due to resource limitations

Question 2

resources limitations

Answer 2

resource limitations such as finances, skilled labor, and managerial attention. Capital rationing can be divided into two types:

Question 3

Hard capital rationing

Answer 3

Externally imposed financial constraints, often more impactful on small and medium-sized enterprises (SMEs). These constraints may stem from an inability to secure funding due to limited credit history or perceived higher risks associated with the business.

Question 4

soft capital rationing

Answer 4

: Internally imposed budgetary limitations. Firms may decide to limit their dependence on external funding to avoid debt obligations and the risk of insolvency. Additionally, soft rationing allows firms to ensure only the most beneficial projects are selected, preventing resources from being spread too thinly.

Question 5

4 headers in section 2

Answer 5

capital rationing arises
resource limitations
hard capital rationing
soft capital rationing