03 a explain the term capital rationing and suggest the, Ask an Expert

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03 (a) Explain the term capital rationing and suggest the criteria to be used in ranking projects under capital rationing. (05)
(b) There are three projects X Y and Z having following cash outflow and net present value.
(Rupees)
Project Cash out Flow NPV
X 80,000 30,500
Y 110,000 20,650
Z 105,000 27,000
There are 3 companies Alpha Beta and Gama with capital budget for the current year of Rs. 100,000 Rs. 150,000 and Rs. 200,000
respectively.
Required:
i) Calculate the profitability index (03)
ii) Rank the projects using the profitability index(PI). (03)
iii) Suggests which project each company will take.

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Statistics and Probability, Statistics

Category:- Statistics and Probability
Reference No.:- M9503033

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