4. Capital rationing - Causes and consequences funds available to finance all proposed capital investment projects that are In the absence of capital rationing, a firm will have judged to be acceptable by its project-evaluation criteria. Consider the following two scenarios and their effects on the average business firm. In most circumstances and all other things remaining constant, which of the two situations, or both or neither, is likely to constrain the firm's capital investment spending? Situation 2 Situation 1 The Federal Reserve's tight money policy is increasing interest rates in the debt markets. The firm's financial condition is rated AAA by rating agencies. O Neither Situation 1 nor 2 are likely to impose capital rationing on the firm O Situation 2 O Both Situations 1 and 2 are likely to impose capital rationing on the firm O Situation 1