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Capital Rationing - profitable out of seven projects but if...

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Capital rationing is technique which is used with  capital budgeting  techniques. Capital rationing technique is used when  company  has  limited  fund  for investing in profitable investment  proposals. In other words Capital rationing is a strategy employed by companies to make  investments based on the current relevant circumstances of the company.  Explanation of Capital Rationing With Simple Example  For example, Company fixes his priority to invest his  money  in more profitable projects. Suppose a company has $ 1 million dollar and after  using the Profitability index technique of capital budgeting company found that three projects of $ 600000, $ 300000 and $ 400000 are 
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Unformatted text preview: profitable out of seven projects but if company has limited cash of $ 1 million only. With this money, company can use capital rationing technique. Under this technique, if company sees that First and third proposal’s profitability index is high than second, then they will select only two projects combination out of three projects. Read also second example of capital rationing ....
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