Skip to content

ACCA Strategic Professional · Advanced Financial Management · Financial strategy formulation

Which statement about soft capital rationing is correct?

Soft capital rationing is a limit imposed internally by management, such as divisional budget ceilings or reluctance to raise new equity, so it can in principle be relaxed. Hard rationing, by contrast, comes from external sources like capital markets or lenders.

  1. AIt is imposed by external capital markets, such as lenders refusing to lend more
  2. BIt arises from internal management restrictions, such as divisional budget limits, and management may be able to relax itCorrect
  3. CIt occurs only when the firm's shares are underpriced
  4. DIt means the firm should accept all projects with positive NPV regardless of the limit

Explanation

Soft rationing is internally imposed, for example through capital budgets set by head office or a desire to avoid issuing equity. Hard rationing is external. Because it is internal, managers may question whether the limit is optimal.

Did you get it right without looking?

One question tells you little. A timed set on Financial strategy formulation shows your real accuracy, how long you take and where you lose marks.

Practise Financial strategy formulationFree diagnostic mock

More Financial strategy formulation questions