The Lake Tahow Ski Resort is comparing a half dozen capital improvement projects. It has allocated $1 million for capital budgeting purposes. The following proposals and associated profitability indexes have been determined. The projects themselves are independent of one another.

a. If strict capital rationing for only the current period is assumed, which of the investments should be undertaken? {Tip: If you didn't use up the entire capital budget, try some other combinations of projects, and determine the total net present value for each combination.)
b. Is this an optimal strategy?

PROJECT 1. Extend ski lift 3 2. Build a new sports shop 3. Extend ski lift 4 4. Build a new restaurant 5. Build addition to housing complex200,000 6. Build an indoor skating rink AMOUNT $500,000 150,000 350,000 450,000 PROFITABILITY INDEX 1.22 0.95 1.20 1.18 1.19 105 400,000