Capital Rationing Notes: Definitions & Explanations PDF | Download eBooks
Study Capital Rationing lecture notes PDF with project management definitions and explanation to study What is Capital Rationing?. Study capital rationing explanation with project management terms to review project management course for online MBA programs.
Capital Rationing Definition:
Capital rationing is the process of selecting the best group of projects such that the highest overall net present value will result without exceeding the total budget available.
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Capital Rationing Notes:
An organization can identify several different opportunities for a new project. The top management of the organization is responsible to see which opportunity could be exploited in favor of the organization. This means that a project must be selected based on a pre-defined selection criteria. Sometimes, a restriction is imposed on the total investment that can be made for a project. This method is called capital rationing. Capital rationing refer to the fact that the total present value of all the made investments must not exceed a specific amount i.e. budget. Two approaches are used in capital rationing. These are internal rate of return and net present value method (better than the two). Capital rationing is usually used when the investments made previously failed.
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