Question

The CFO of Edward's Food Distributors is continually receiving capital funding requests from its division managers. These requests are seeking funding for positive net present value projects. The CFO continues to deny all funding requests due to the financial situation of the company. Apparently, the company is:__________.
a. Operating at the accounting break-even point.
b. Operating at the financial break-even point.
c. Facing hard rationing.
d. Operating with zero leverage.
e. Operating at maximum capacity.

Answer 1

Answer:

c. Facing hard rationing.

Explanation:

In this scenario, the CFO of Edward's Food Distributors is continually receiving capital funding requests from its division managers. These requests are seeking funding for positive net present value projects. The CFO continues to deny all funding requests due to the financial situation of the company. Apparently, the company is facing hard rationing.

Hard rationing can be defined as a capital budget that an organization is expected to adhere strictly to, as a result of limited or few resources availability and as such there is no room for errors or modifications in the short run.