To help rank projects in a capital rationing environment,managers often use the:

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The profitability index is the ratio of the present value of cash inflows to the initial investment. It helps rank projects based on the return per unit of investment, which is useful in a capital rationing environment where there are constraints on the available funds. A higher profitability index implies that a project delivers a higher return on the investment and, therefore, is a better choice compared to other projects.

To Help Rank Projects in a Capital Rationing Environment,managers Often