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    Question

    How would you define the process of allocating a

    limited capital budget between different projects in a way that maximizes shareholder wealth?
    A Capital Budgeting Correct Answer Incorrect Answer
    B Capital rationing Correct Answer Incorrect Answer
    C Contradictory analysis Correct Answer Incorrect Answer
    D Investment Analysis Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    When a company has limited budget or capital available, it would have to choose between various independent projects. The company will choose such projects that will contribute maximum to shareholder value. For example, if there are 2 independent projects with NPV of Rs.3000 and Rs.5000 respectively, the company will allocate more capital to the project with NPV of 5000.

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