ACCA FM December 2026: Capital Rationing — Divisible vs Indivisible Projects

Capital rationing questions in ACCA FM come down to one word: divisible or indivisible. Get that wrong and every number after it is wrong too.

Why this catches people out

Capital rationing sits in the Investment Appraisal area of the FM syllabus (Section D). The study guide expects you to appraise projects when capital is rationed, covering single-period rationing with divisible projects, and single-period rationing with indivisible projects. They are two different methods, and the CBE will happily give you a scenario that makes the wrong one look tempting.

The mistake is mechanical. Students learn "rank by profitability index" and apply it every time. That is only right when you can take part of a project. If a project is all-or-nothing, ranking leaves you with a fraction of a project you can't actually buy.

The second slip is ranking by absolute NPV. NPV tells you which project is biggest, not which uses scarce funds best. With a budget limit, the question is NPV per £1 of the limited resource.

Worked example

You have £100,000 available now. Three projects, none repeatable:

Project A: outlay £60,000, NPV £18,000 (PI 0.30)
Project B: outlay £50,000, NPV £20,000 (PI 0.40)
Project C: outlay £50,000, NPV £14,000 (PI 0.28)

Wrong answer (indivisible projects): "Rank by PI: B, A, C. Take B in full and 5/6 of A. Total NPV £35,000."

That only works if A is divisible. The question says it is not, so £35,000 is not achievable.

Correct answer (indivisible projects): Test the combinations that fit within £100,000. A + B costs £110,000, so it is out. A + C is also £110,000, out. B + C costs £100,000 and gives NPV £34,000. A alone gives £18,000. Take B and C: NPV £34,000.

If the projects were divisible: B in full (£50,000, NPV £20,000) plus 5/6 of A (£50,000, NPV £15,000) gives £35,000. Same numbers, different answer, because the method follows the wording.

What to do

1. Circle the word in the requirement. Divisible, indivisible, or "cannot be postponed". Decide the method before touching a calculator.

2. Show the PI and the ranking, even when you then switch to combinations. The ranking is quick marks. Write the PI as NPV divided by the capital outlay in the rationed period, not total NPV over total cost.

3. Add one line of limits. Single-period only, projects assumed non-repeatable and independent, no allowance for rationing in later years. Comment marks are cheap in FM and students leave them behind.

The bottom line

Capital rationing is a small topic that can cost you most of an investment appraisal question. Read the requirement, pick the method, then calculate. Divisible means rank. Indivisible means combine.

Same numbers, different wording, different answer. Read the question first.