《MPAcc财会专业英语》Chapter29.pdfVIP

Chapter 29 (P595-604) Capital rationing Topic list (P595) • 1 Causes of shortage of capital • 2 Single period capital rationing • 3 Multi-period capital rationing Introduction (P595) Scarce Single period capital rationing; profitability index Multi-period capital rationing; linear progamming Study guide (P596) Section 17- Capital rationing • Exam guide (P596) 1 Causes of a shortage of capital (P596) • Capital rationing may occur due to internal factors or external factors. • Soft capital rationing • Hard capital rationing 1.1 Soft and hard capital rationing(P596) • Soft capital rationing: • (a) reluctant to issue additional share capital • (b) Management unwilling to issue additional share capital • (c) not want to raise additional debt capital • (d) limit investment • (e) Capital expenditure budgets may restrict spending. • Hard capital rationing: • (a) share prices ar depressed • (b) restrictions on bank lending • (c) too risky • (d) costs may be too great. 1.2 Relaxation of capital constraints(P597) • (a) seek joint venture partners • (b) licensing or franchising agreement • (c) contract • (d) new sources of capital 2 Single period capital rationing (P597) • When capital rationing occurs in single period, projects are ranked in terms of profitability index. • (a) opportunity lost • (b) complete certainty • (c) Projects are divisible • 2.1 Example: Capital rationing • 2.1.1 Problems with the Profitability Index method • (a) projects are divisible • (b) selection criterion is simplistic • (c) differing cash flow patterns • (d) ignores absolute size • 2.2 Postponing projects (P600) • 2.3 Example: Postponing projects (P600) 3 Multi-period capital rationing (P601) • When capita rationing occurs in a number of periods and two projects are under consideration , the graphical approach to linear programm