Nordia corporation is experiencing hard capital rationing and will not be able to invest more than $850,000 this year. All four of the following projects will last three years and the firm uses a 10 percent discount rate.
a) prepare a profitability index chart.
b) For each project that you reject (if any) explain your reason(s) for rejecting it.
| project | cost | Annual inflows |
| A | $300,000 | $130,000 |
| B | $500,000 | $220,000 |
| C | $125,000 | $60,000 |
| D | $250,000 | $100,000 |
Answer a)
Answer b) The proposal index is accepted if the profitability index is more than 1 and is rejected if profitability index is less than 1.
| Project | | | | Present value factor@ 10% | | |
| A | | | | |
| B | | | | |
| C | | | | |
| D | | | | |
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