funds available to finance all proposed capital investment projects that are judgec When subject to capital rationing, a firm will have sufficient to be acceptable by its project-evaluation and 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 1 An abundance of available credit and the willingness to lend by banks and the debt markets. Situation 2 The presence of restrictive covenants that impose limits on the firm's borrowing capacity. O Situation 2 O Situation 1 ONeither Situation 1 nor 2 are likely to impose capital rationing on the firm Both Situations 1 and 2 are likely to impose capital rationing on the firm