Building in Capital Rationing Constraints into Analysis

We recommend that firms separate the capital rationing constraint from traditional investment analysis so they can observe how much these constraints cost. In the simplest terms, the cost of a capital rationing constraint is the total net present value of the good projects that could not be taken for lack of funds. There are two reasons why this

4 When capital rationing constraints occur over multiple periods, and there are dozens of projects, mathematical programming has been suggested as a solution by Baumol and Quandt (1965).

knowledge is useful. First, if the firm is faced with the opportunity to relax these constraints, knowing how much these constraints are costing the firm will be useful. For instance, the firm may be able to enter into a strategic partnership with a larger firm with excess funds and use the cash to take the good projects that would otherwise have been rejected, sharing the net present value of these projects. Second, if the capital rationing is self-imposed, managers in the firm are forced to confront the cost of the constraint. In some cases, the sheer magnitude of this cost may be sufficient for them to drop or relax the constraint.

Retirement Planning For The Golden Years

Retirement Planning For The Golden Years

If mutual funds seem boring to you, there are other higher risk investment opportunities in the form of stocks. I seriously recommend studying the market carefully and completely before making the leap into stock trading but this can be quite the short-term quick profit rush that you are looking for if you am willing to risk your retirement investment for the sake of increasing your net worth. If you do choose to invest in the stock market please take the time to learn the proper procedures, the risks, and the process before diving in. If you have a financial planner and you definitely should then he or she may prove to be an exceptional resource when it comes to the practice of 'playing' the stock market.

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