ABC Corporation Is Experiencing Hard Capital Rationing and Will Not

Essay

ABC Corporation is experiencing hard capital rationing and will not be able to invest more than $1,000,000 this year.Develop a profitability index for the following four projects and state what would be selected: All four projects will last three years and the firm uses a 10 percent discount rate.
$$\begin{array} { | c | c | c | } \hline \text { Project } & \text { Cost } & \text { Annual Inflows } \\\hline \text { A } & \$ 300,000 & \$ 130,000 \\\hline \text { B } & \$ 500,000 & \$ 220,000 \\\hline \text { C } & \$ 125,000 & \$ 60,000 \\\hline \text { D } & \$ 250,000 & \$ 100,000 \\\hline\end{array}$$