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Question) The situation a firm faces when it has positive net present value projects but cannot...

Question) The situation a firm faces when it has positive net present value projects but cannot obtain financing for those projects is referred to as:
    a.   sensitivity planning.
   b.   a contingency situation.
   c.   capital rationing.
   d.   a discounted cash flow.
   e.   a sunk cost situation.

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Answer #1

c. Capital rationing

This is the state when the company has rationed or limited capital available. There are many viable projects but the company cannnot take them all due to capital limitations.

a.Sensitivity planning refers to finding NPV by changing different variables.

b Contingency situtaion is an emergency situation which may occur in future.

d. a discounted cash flow is the present value of future cash flow
e.   a sunk cost situation is the cost which is incurred and which is irrelevant to decision making.

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