FIN 3104 Study Guide - Midterm Guide: Net Present Value, Capital Budgeting, Discount Window
27 Aug 2016
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Exam 3 notes: project ranking and capital rationing a. Why not just take all projects with npv > ), pv > 1, irr > k? a. i. 1. Mutually exclusive project if one is accepted, the other must be rejected a. i. 2. Capital rationing - dollar limit on the amount of money that can be spent on new projects a. i. 3. Real options when there is an ability to modify the project once its underway; allowing for adjustments we can make in the project after its accepted a. i. 3. a. Important in f&b (htm: capital rationing b. i. We have implicitly been saying that the size of the capital budget is determined by the supply of available proposals. If a constraint is imposed b. ii. b. ii. 1. b. ii. 2. Since firms always have the option to raise additional funds in the market, why would capital rationing ever exist? b. iii. 1. Market conditions are temporarily adverse stuck too low (bad caution) b. iii. 2.
