ACCA FM · Chapter 8 · Question 6 of 10
What is the difference between hard and soft capital rationing?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Hard rationing is imposed by external factors such as lenders, while soft rationing is imposed internally by the company's own management
Explanation
Hard capital rationing arises from external constraints, for example banks being unwilling to lend more. Soft capital rationing is self-imposed, for example management setting a divisional budget limit or not wishing to dilute control by issuing new shares. The distinction does not depend on project divisibility or the number of periods.
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