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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
doubt—- in book the answer is D, but i when i wrote this question in Ask Ai FM forum, the answer come out – C, Now i’m Confused which option is correct, Please help to clear this doubt with reason.
Ambiguous question
The answer is D.
The desire to maximise the return of a limited range of investments is not a reason for hard capital rationing.Hard capital rationing refers to situations where external factors, such as lending institutions considering the company too risky or government restrictions on lending, limit the availability of capital for investment.
Also the costs associated with making small issues of capital may be too great, leading to hard capital rationing. So imagine a company may be unable to raise sufficient funds to finance all of its investment opportunities, even if they are expected to generate positive returns. This limitation can arise due to limited access to external financing or when the company has already reached its debt capacity.
So the desire to maximise return is the only one that is not a reason for hard capital rationing. Although you could argue that it may require the company to prioritise certain investments over others due to limited funds.
So not a good question in my humble opinion!
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