ABC Corporation Is Experiencing Hard Capital Rationing and Will Not

question 26

Essay

ABC Corporation is experiencing hard capital rationing and will not be able to invest more than $1,000,000 this year.Develop a profitability index for the following four projects and state what would be selected: All four projects will last three years and the firm uses a 10 percent discount rate.
$$\begin{array} { | c | c | c | } \hline \text { Project } & \text { Cost } & \text { Annual Inflows } \\\hline \text { A } & \$ 300,000 & \$ 130,000 \\\hline \text { B } & \$ 500,000 & \$ 220,000 \\\hline \text { C } & \$ 125,000 & \$ 60,000 \\\hline \text { D } & \$ 250,000 & \$ 100,000 \\\hline\end{array}$$

Recognize the consequences of failing to adhere to bond agreements.

Comprehend the function and benefits of sinking funds for debt management.

Understand the hierarchy of debt and equity and the implications of subordination.

Identify and distinguish between positive and negative covenants within the context of corporate finance.

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Definitions:

U.S. Currency

The official money used in the United States, primarily consisting of Federal Reserve Notes (dollars) and coins.

Held Abroad

Refers to assets or investments located or held in a foreign country, outside of the investor's home nation.

Unit Of Account

The yardstick people use to post prices and record debts.

Legal Tender

Legal tender refers to money that must be accepted if offered in payment of a debt in the jurisdiction where the payment is being made.