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State what can be the motive for capital being rationed ?
If a company does not have enough funds to take the benefit of investing in all positive NPV projects it faces the situation of capital ratoining. In this situation projects will be ranked according to their profitiability index (in case of divisible projects) or a trial and error method used where project are not divisible. Once ranking is done budget is allocated accroding to the ranking assigned and availability of budget.
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