An increase in marginal cost of capital and the capital rationing are two arising complications of __________?
Correct answer: C. optimal capital budget
- A. maximum capital budget
- B. greater capital budget
- C. optimal capital budget
- D. minimum capital budget
Explanation
When a firm approaches its optimal capital budget, the marginal cost of capital may increase and available funds may become subject to capital rationing. These constraints complicate the selection of the final investment level.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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