In capital budgeting, the term ‘capital rationing’ implies

That no retained earnings are available
That limited funds are available for investment
That no external funds can be raised
That no fresh investment is required in current year

The correct answer is: B. That limited funds are available for investment.

Capital rationing is a situation in which a company has more investment opportunities than it has funds available to invest. This can happen for a number of reasons, such as a lack of cash flow, a high debt load, or a conservative investment policy. When a company is faced with capital rationing, it must decide which projects to invest in and which to forgo. This can be a difficult decision, as it requires the company to balance the potential returns of different projects with the risk of not having enough funds to cover its operating expenses.

Option A is incorrect because retained earnings are one source of funds that a company can use for investment. However, retained earnings are not the only source of funds, and a company may still face capital rationing even if it has positive retained earnings.

Option C is incorrect because a company can raise external funds, such as debt or equity, to finance investment projects. However, raising external funds can be expensive, and a company may choose to forgo investment opportunities rather than take on additional debt or equity.

Option D is incorrect because a company may still need to make fresh investments even if it does not have any new projects in the current year. For example, a company may need to replace old equipment or make repairs to existing facilities.