Capital Rationing

question 24

Multiple Choice

Capital rationing. TuleTime Comics is considering a new show that will generate annual cash flows of $100,000 into the infinite future. If the initial outlay for such a production is $1,500,000 and the appropriate discount rate is 6 per cent for the cash flows, then what is the profitability index for the project?

• A) 0.11
• B) 0.90
• C) 1.11
• D) 1.90