ACCA Financial Management (F9) Certification Practice Exam

Disable ads (and more) with a membership for a one time $4.99 payment

Prepare for the ACCA Financial Management (F9) Certification Exam with engaging quizzes and interactive content. Dive deep into financial management concepts and boost your exam confidence with questions that come with detailed explanations.

Practice this question and more.

Why might a firm experience capital rationing?

Due to excessive internal funds available
Because of a lack of profitable investment opportunities
Due to high liquidity and availability of short-term finance
Due to limits placed on available capital for investments

The correct answer is: Due to limits placed on available capital for investments

A firm might experience capital rationing primarily due to limits placed on available capital for investments. This situation often arises when a company has a fixed budget for capital expenditures and needs to prioritize certain projects over others. Capital rationing can stem from various factors, such as organizational policies, market conditions, or external constraints like economic downturns that limit access to additional financing. In this context, the firm may have several potential investment opportunities but may not have enough capital to fund all of them effectively. Thus, the company must carefully evaluate and select projects that align with its strategic goals and offer the best return on investment, given the restrictive capital constraints. Understanding this concept is crucial for financial managers as it affects decision-making processes related to investment planning and project selection, ensuring that the limited resources are allocated in the most effective manner to maximize shareholder value.