A company in Arkansas is reviewing 7 capital investment proposals. The funds t

A company in Arkansas is reviewing 7 capital investment proposals. The funds that wer available are limited to the maximum amount of $12 million. Each project
is stand alone and have the below costs and profitability indexes.

a. While using capital rationing which projects should be selected and why?

b. What are common problems with capital rationing?

Project Cost Profitability Index

New Park $4 million 1.18

Common area expansion 3 million 1.08

Upgrade facility 5 million 1.33

Walking Trail 6 million 1.31

Exercise facility 4 million 1.19

Parking garage 6 million 1.20

Storm Shelter 4 million 1.18