In capital budgeting, which concept involves managing limited resources effectively?

The concept that involves managing limited resources effectively within capital budgeting is capital rationing. This approach recognizes that organizations often have a constrained amount of capital available for investment projects. As a result, capital rationing requires the decision-makers to prioritize their project selections based on expected returns, costs, risk, and strategic alignment with the company's goals.

In capital rationing, companies must evaluate and choose which projects to fund when they cannot finance all potential investments. This process involves careful analysis to ensure that the chosen projects offer the best possible benefits or returns for the available capital. Effective capital rationing helps maximize the overall value of the firm, ensuring that resources are allocated in a manner that supports long-term growth and stability.

The other concepts, while relevant to capital budgeting, do not focus specifically on the issue of managing limited resources. Project dependency analysis looks at the interrelationships between projects, capital budgeting evaluation assesses the viability of potential projects, and asset allocation pertains to the distribution of assets in an investment portfolio, rather than the prioritization of capital for projects. Therefore, capital rationing is the concept that directly addresses the management of limited financial resources in the context of capital budgeting.