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What is capital rationing?

Capital rationing is meant to illustrate that a company does not have unlimited capital, so they would perform analysis to determine what types of capital projects would provide the greatest benefit to the company. Every company will use different metrics to determine which projects to accept or reject based on their goals. 


As it relates to your own personal situation, think about how you don’t have unlimited cash to buy whatever you want. You evaluate where you should spend your cash based on your goals or what matters most to you. That is a form of capital rationing since you are deciding where to spend or invest your cash. 


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