3. Plastex Corporation is considering expanding but wishes to control growth by imposing a limit on capital on capital expenditures of $500,000. The capital investment opportunities are: + Profitability Index PI Rank First-Year Cash Flows Project Cost NPV 1 $200 $50 1.25 1 $0 2 $200 $40 1.20 5 $5 3 $400 $99 1.2475 2 $10 4 $100 $17 1.17 7 $2 5 $100 $19 1.19 6 $3 6 $50 $12 1.24 3 $20 7 $50 $11 1.22 4 $15 a. Use the profitability index to select projects subject to the constraint that the firm can only invest $500,000. In other words, use the PI ranking to accept the best project, the next- best project, and so on until the money is completely used. If a project's, costs bring the total over $500,000 limit while money remains, skip it and attempt to add a cheaper one. b. Compute the total of the NPV's of the projects selected earlier. c. Use your common sense to figure out a better solution- one that produces a higher total NPV but still uses only $500,000. Compute the sum of the NPV's of the better solution. d. Why do answers a-c differ and why is the profitability index method flawed? 2