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Capital rationing implies that a company has a fixed investment budget so must choose among...

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Accounting

Capital rationing implies that a company has a fixed investment budget so must choose among its positive NPV projects. Some good projects (positive NPV) will not be funded. In theory capital rationing should never occur. Capital markets should always make funds available for positive NPV projects. But in reality funds are limited. This problem asks you to decide how best to allocate an investment budget of $400,000. Select the best group of projects from the set shown below.

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Project NPV at 10% IRR Life (Years) 15 8 Cost (T=0) $350.000 $200.000 $120,000 $80,000 $75,000 $50.000 $200.000 $200.000 Cash flow per year $58,600 $52.250 $32.750 $22,500 $18.000 $17.000 47.500 $83.000 $95.716.26 $78.749.89 $39,440.72 $40.035.84 $3,394.69 $14.443.38 $53.408.99 $63.098.83 14.6% 20.1% 19.4% 22.6% 11.5% 20.8% 17.0% 23.9% Profitability Index 1.27 1.39 1.33 1.50 1.05 1.29 1.27 1.32 7 8

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