ACCA Applied Skills · Financial Management · Investment appraisal techniques
Which of the following is an example of soft capital rationing?
Soft capital rationing is an internally imposed restriction, such as head office setting a capital budget for a division even though external funds are available. External restrictions from banks, markets or regulation are hard capital rationing.
- AHead office sets a capital budget for a division to restrain spending, even though funds could be raised externallyCorrect
- BA bank refuses to lend to the company because of its high gearing
- CEquity markets are closed to the company because of its small size
- DA government prohibits the company from borrowing more than a fixed amount
Explanation
Soft rationing arises from internal, management-imposed limits on capital. Hard rationing arises from external constraints such as lenders' refusals, market conditions or legal limits, so the other options are hard rationing.
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