CAF-7 · Chapter 13 · Question 11 of 15
A company is forced to reject a highly profitable project because its internal Board of Directors has imposed a strict limit on the capital expenditure budget for the year, prioritizing stability over rapid expansion. This scenario is an example of:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Soft capital rationing
Explanation
Soft capital rationing occurs when the limits on investment funds are imposed internally by the company's own management or board of directors. Hard capital rationing occurs when the restrictions are imposed externally by financial markets or banks.
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