When there is capital rationing projects should be ranked according to?

(i) Ranking the projects according to the Profitability Index (PI) or Net Present Value (NPV) method; (ii) Selecting projects in descending order of profitability (until the funds are exhausted). The projects can be ranked by any one of the DCF techniques, viz., IRR, NPV and PI.

What techniques can be used to determine the optimum investment schedule for a company under conditions of capital rationing?

Capital Rationing Method

• Evaluation of all the investment proposals using the capital budgeting techniques of Net Present Value (NPV), Internal Rate of Return (IRR) and Profitability Index (PI)
• Rank them based on various criterion viz.

How are capital projects ranked by risk adjusted returns?

Projects in the middle, which would meet their cost of capital but did not exceed the elevated hurdle rate, were rank ordered by their risk-adjusted returns. For these projects, ad hoc discussion can shift the rank ordering slightly.

How to make better decisions about capital projects?

Project proponents repeatedly argued that their pet projects were strategic priorities—and that they urgently needed to go ahead without waiting until the system fixed all the other projects’ numbers. Rank order projects by risk-adjusted returns to identify which projects to fast-track and which to decline.

Which is the best method for appraisal of capital projects?

Technique # 1. Payback Period Method: The payback period is usually expressed in years, which it takes the cash inflows from a capital investment project to equal the cash outflows. The method recognizes the recovery of original capital invested in a project.

What are the steps in the capital decision making process?

The process for capital decision-making involves five steps: 1. Determine capital needs. 2. Explore resource limitations. 3. Establish baseline criteria for alternatives. 4. Evaluate alternatives using screening and preference decisions. 5. Make the decision.