James H. Lorie

Three Problems in Rationing Capital

Corporate executive face three tasks in achieving good financial management. The first is largely administrative and consist in finding an efficient procedure for preparing and reviewing capital budgets, for delegating authority and fixing responsibility for expenditures, and for finding some mcans for altimate evaluation of completed investments. The second task is to forecast correctly the cash flows that can be expected to result from specified investment proposals, as well as the liquid resources that will be available for investment. The third task is to ration available capital or liquid resources among competing investment opportunities. This article is concerned with only this last task; it discusses three problems in the rationing of capital, in the sense of liquid resources.