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John Moffat.
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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Asset replacement decisions
Sir this is testing your understanding 9
Which of the following is not a reason for hard capital rationing?
A Lending institutions may consider the company to be too risky
B There are restrictions on lending due to government control
C The costs associated with making small issues of capital may be too great
D Desire to maximise return of a limited range of investments
Although the answer is D
I cannot really understand the option C.
There are always costs involved when raising more capital. If they are only raising a small amount then the costs may take up too much of the money being raised.
What kind of costs will arise when raising investments sir
Advertising the share issue, paying merchant banks for advice or for a placing, paying underwriters. I explain these in my free lectures on Sources of Finance.