ECONOMICS

Detailed explanation-1: -In case of capital rationing, the company may not be able to invest in all profitable projects. Therefore, the key to decision making under capital rationing is to select those projects that maximize the total net present value given the capital budget limit.

Detailed explanation-2: -There are several capital budgeting analysis methods that can be used to determine the economic feasibility of a capital investment. They include the Payback Period, Discounted Payment Period, Net Present Value, Protability Index, Internal Rate of Return, and Modied Internal Rate of Return.

Detailed explanation-3: -The profitability index is the net present value of the project income divided by the project cost. It provides a useful guide for comparing projects based on their expected return. The profitability index is considered to be one of the best financial tools to use in a capital rationing situation.

Detailed explanation-4: -Payback Period, Net Present Value Method, Internal Rate of Return, and Profitability Index are the methods to carry out capital budgeting.