What is capital rationing, what conditions lead toit, and how should it be dealt with?

Q: What is capital rationing?

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Q: Why might the weights of capital be different depending on whether book values,market values, or…

A: The weights of the capital should be different for book values of a equity, market value of a…

Q: What role do interest rates play in allocating capital to different potential borrowers?

A: Rate of interest : It is the amount paid by a borrower to use the capital borrowed from the…

Q: Critically discuss over-investment and under-investment problems due to debt usage. What kinds of…

A: Capital structure means the amount of debt and equity which the firm has as its capital. The company…

Q: What is meant by the ''institutionalization'' of capital markets?

A: ''Institutionalization'' of capital markets refers to the gradual domination of the capital markets…

Q: What does capital structure theory attempt to do?What lessons can be learned from capital structure…

A: Capital structure is defined as mixture or proportion of all kinds of capital such as debt, equity…

Q: What would you choose? Other investment assets or Alternatives to fixed income and equities

A: Allocation of the investment is a much wider and troublesome task. the proper allocation may lead to…

Q: What allows financial institutions to generate a profit? What are the conditions under which their…

A: THE INTRODUCTION: The marketplaces where financial assets and instruments are traded and the sites…

Q: why is Capital Asset Pricing Model relevant

A: The Capital Asset Pricing Model, popularly known as CAPM, is an important model that is often used…

Q: In computing the cost of capital, do we use the historical costs of existing debt and equity or the…

A: WACC is cost incurred by entity to finance its capital structure. It is sum of weighted individual…

Q: Is capital rationing always a bad thing? Explain

A: Capital rationing: Capital rationing is restriction bestowed upon new investments in the…

Q: capital controls, which investment would you choose? What are the risks associated with this trade?

A: The United States has always been ranked among the best in the world for its competitiveness and…

Q: What is the compensation for price risk in finance? How do they arise and what issues arise due to…

A: Price risk: Price risk can be defined as the risk that price of a security may reduce. This risk is…

Q: The cost of capital is a hurdle rate. Is this statement true? Why or why not?

A: The question is based on the concept of minimum required rate for any project . Hurdle rate is the…

Q: acroprudential measures overlap?

A: Assessing their effectiveness is complicated by selection bias; countries which change their…

Q: What is the difference between capital budgeting decisions and capital structure decisions? Which of…

A: Capital budgeting: Capital budgeting is the process of evaluating different investment projects that…

Q: What factors can lead to an increasing marginal cost of capital?How might this affect capital…

A: Following are the factors that lead to an increasing marginal cost of capital: The breakpoint of…

Q: What are three explanations for capital rationing? How might firmsotherwise handle these situations?

A: Capital Rationing: Capital rationing is a situation which generally takes place when the management…

Q: What does the financial breakeven point shows?

A: A breakeven point is a situation of no loss no profit. The breakeven point is generally calculated…

Q: What is meant by reserve borrowing capacity, and why is itimportant to firms?

A: Introduction: Capital structure relates to financing of the overall activities and development of a…

Q: What does the empirical evidence say about capital structure theory? What are the implications…

A: Introduction: Capital structure relates to financing of the overall activities and development of a…

Q: What is the nominal return associated with an investment in capital, and why?

A: Nominal Return is the amount of money generated by an investment.

Q: Why is "Projecting Growth Beyond What the Capital Being Valued Will Support" considered a common…

A: Income Approach There are two different model which was incurred in the income approach.  The…

Q: What are some limitations of financial performance measures?

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Q: What is the trade-off theory of capital structure?How does it differ from MM’s theory?

A: Trade off theory of capital structure: This is a theory in which the company decides on the ratio of…

Q: What is the crossover rate, and how does it interact with the costof capital to determine whether or…

A: The rate at which the net present value (NPV) of 2 ventures is equivalent is the crossover rate…

Q: Money market does not have any role in the development of capital market

A: Money market is a market which deals in short term securities like treasury bills, bills of…

Q: Distinguish between hard and soft capital rationing

A: Capital rationing is allocating a given amount among the most profitable projects which can maximize…

Q: Why is the cost of capital sometimes referred to as a “hurdle rate”?

A: Cost of capital is the cost of financing a business, investment or a project. Cost of capital is…

Q: What are some ways in which the capital structure decisions canaffect the value of operations?

A: Capital structure decisions are based on the cost of capital procured from various sources. The form…

Q: Why isn’t accounting net income used in the net present value method of making capitalbudgeting…

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Q: Define the term capital rationing.

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Q: What would you choose? OTHER INVESTMENT ASSETS or ALTERNATIVES TO FIXED INCOME AND EQUITIES

A: Portfolio investments: Portfolio investment is the type of investment in which various types of…

Q: Why does the use of debt lower the profit margin and the ROA?

A: Company needs to raise the fund to have the capital which needs for the business for multiple…

Q: Does the signaling theory lead to the same conclusions regarding the optimal capital structure asthe…

A: The concept of signaling theory comes from the asymmetries of knowledge between management and…

Q: What is the relationship between a discount rate (or IRR) and a capitalization rate? What causes…

A: Introduction: The discount rate is nothing but a rate that reduces potential cash flows in order to…

Q: What are the differences between mutually exclusive, non-mutually exclusive,and capital rationing…

A: DIFFERENCE BETWEEN  MUTUALLY EXCLUSIVE ,  NON MUTUALLY  EXCLUSIVE ,AND CAPITAL RATIONING DECISION…

Q: Distinguish between: Money market and capital market?

A: MONEY MARKET- The money market refers to commercialism in very short debt investments. At the…

Q: What is Capital gearing and how might it be calculated?

A: Meaning of Capital Gearing  Capital gearing is the ratio between total equity and total debt ( Fixed…

Q: What is the Modigliani and Miller Capital structure theory and the assumptions of the theory? What…

A: The Modigliani-Miller theorem (M&M) states that the market value of a company is calculated…