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 ra...

a Selecting those projects with the highest profitabilit ...

The Lake Tahow Ski Resort is comparing a half dozen capital improvement projects. It has allocated $1

Question:

The Lake Tahow Ski Resort is comparing a half dozen capital improvement projects. It has allocated $1 million for 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?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Capital Budgeting
Capital budgeting is a practice or method of analyzing investment decisions in capital expenditure, which is incurred at a point of time but benefits are yielded in future usually after one year or more, and incurred to obtain or improve the... Capital Rationing
Capital rationing is the act of placing restrictions on the amount of new investments or projects undertaken by a company. Capital rationing is the decision process used to select capital projects when there is a limited amount of funding available....