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CAPITAL INVESTMENT APPRAISAL
Capital Rationing
Example:
If there is capital rationing: The company has R50 000 to spend on projects.
Which projects will be taken if the projects are divisible?
All of project B (R30 000) 4 000
R20 000 of project A 2 000 (5 000 x 20 000/50 000)
Overall NPV 6 000
Which projects will be taken if the projects are not divisible?
Invest in project A only as it generates the highest absolute NPV.
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