Certified Management Accountant Practice Exam 2026 – The Comprehensive All-in-One Guide to Exam Success!

Capital rationing occurs when a company decides to limit its new investment opportunities, typically because of constraints in available funds. Engaging in capital rationing often stems from a shortage of managerial resources, which includes time, expertise, and the capacity to effectively manage multiple projects. When a company faces limited managerial resources, it may prioritize or allocate capital only to the most promising projects that can be handled within those constraints.

In this context, a company may have viable investment opportunities but chooses not to pursue all of them due to the lack of sufficient managerial bandwidth to oversee multiple projects simultaneously. Thus, the decision for capital rationing is influenced not only by financial constraints but significantly by the capacity to manage the implementation of these investments effectively.

Other options reflect scenarios that do not typically lead to capital rationing. For example, a desire to avoid debt financing or a willingness to issue new equity suggests an alternative approach to raising funds rather than rationing capital. Similarly, having an excess availability of capital would lead a company to invest rather than to limit investment options.