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What is capital rationing? Should a firm practice capital rationing? Why?
Capital rationing is the practice of putting dollar limits on what will be invested in new capital budgeting projects. Private corporations, partnerships and Proprietorships are in a position to do whatever the owners wish. It can be disputed, but, that for a publicly traded corporation capital rationing may not be steady with maximizing the value of the firm. This is because various value adding projects may be rejected if they would cause the firm to go beyond its self imposed capital rationing limit.
Let us construct a binomial interest rate tree for a 5.5% option free bond taking Table 3 as the binomial interest rate tree. Table 1 shows the various values in
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How does a preemptive right protect the interests of existing stockholders? A preventive right protects the interests of existing stockholders by giving them the opportunity to
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