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Unformatted text preview: This increased cost of capital may cause you to reject projects that you might otherwise accept because with your increased cost of capital, some projects may be negative NPV when they would otherwise be positive NPV in a normal year. Another effect of this large capital budget is that you may choose to ration capital i.e. not fund all of the projects. This is called capital rationing, and companies and investors do this when for whatever reason they put a cap on the funds they are willing to invest in new projects....
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- Spring '08