Hard capital rationing
Hard capital rationing occurs when external providers or market conditions prevent an organisation obtaining sufficient capital for all desired projects. Restrictions may reflect creditworthiness, market access or other external factors; available finance may have different costs and conditions. Under a single-period budget, the objective is to maximise total value within the constraint, not simply choose the largest accounting return. Divisibility, project interdependence and funding assumptions determine the appropriate selection method.
Worked example
A company can raise at most $1 million externally despite having several positive-NPV projects. It evaluates feasible combinations and selects the mix with the highest total NPV within that funding limit.
Common mistake
Equating every internally imposed budget with hard rationing or ranking indivisible projects mechanically by a ratio without checking combinations.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Direct | September 2026–June 2027 |