One of the benefits of capital rationing is that the approach helps to ensure that funds for basic operations are not diverted in order to take advantage of a so-called “can’t fail” opportunity, which helps to maintain the stability of the business.
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Generally, capital rationing is utilized as a means of putting a limit or cap on the portion of the existing budget that may be used in acquiring a new asset. As part of this process, the investor will also want to consider the use of a high cost of capital when thinking in terms of the outcome of the act of acquiring a particular asset...
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