Capital rationing requires that companies:

A) always select the projects with the highest IRR's.
B) always select projects that fit within their capital constraints.
C) may reject some projects that have an IRR higher than the cost of capital.
D) Both b. and c. are correct.
E) All of the above are correct.

Capital Rationing

In capital budgeting, the process of allocating available capital among projects to maximize total NPV.

IRR

The Internal Rate of Return; a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Capital Constraints

Limitations on the amount of capital a company or economy can obtain, often leading to restrictions on growth and investment.