Asked by Kaitlyn Hearn on Jun 25, 2024
Verified
If a division of a firm faces soft rationing, it is unlikely more capital can be obtained from the firm if the division finds a worthwhile positive NPV project.
Soft Rationing
An internal policy mechanism by which a company limits the amount of funding allocated to new or existing projects, without a shortage of available funds.
NPV Project
A project evaluated using the Net Present Value method, which calculates the present value of all cash flows associated with the project, minus the initial investment.
- Understand the distinction between soft and hard capital rationing and their effects on financing projects.
Verified Answer
BM
Bre’Asia McWilliamsJun 27, 2024
Final Answer :
False
Explanation :
Soft rationing occurs when a division is limited in the amount of funds it can receive from the parent company, not because the company lacks funds, but due to internal policy decisions. If a division finds a worthwhile positive NPV project, it can often make a case for obtaining more capital, especially if the project aligns with the firm's strategic goals and has a clear, positive financial outlook.
Learning Objectives
- Understand the distinction between soft and hard capital rationing and their effects on financing projects.
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