Given that a company's investment options are not mutually exclusive and that there is no capital rationing restriction, the company should approve any investment proposals with a positive net present value.
Corporations must decide how to allocate their capital among several projects because their resources are limited. This process is known as capital rationing. Maximizing the return on their investment is the key objective. Typically, businesses face a wide range of investment options, but they lack the funds to pursue them all. A natural way to distribute their available funds is through capital rationing. Typically, a business will try to invest its resources in the set of initiatives that delivers the highest overall net present value. In order to invest in projects with greater long-term potential for the company as it positions itself for the future, businesses may also strategically use capital rationing by forgoing immediate profit.
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