Assume you were Jack, Director of International Investment. Briefly explain the ranking principle for capital allocation when the capital is limited, and calculate the present value index for Project A, Project B, and Project C. With a total investment of l billion Hong Kong dollars (HKD 1 000 000 000) , determine the available combinations of project investment options. Lastly, suggest to the management the best investment decision and provide a reason to support your decision.
参考答案：
Answers:
(1) Under the ranking principle for capital allocation when the capital is limited, the limited capital should be allocated to the project that has a higher present value index.
(2)
Present value index for Project A is
(9 091 +12 396 +8 264 +12 977 + 9 934)/50 000 =52 662/50 000 =1.05
Preysent value index for Project B is
(12 727 +9 090 +11 270 +10 928 +9 314)/50 000 =53 329/50 000 =1.07
Present value index for Project C is
(8 182 +12 396 +13 523 +10 245 +8 693)/50 000 =53 039/50 000 =1.06
(3) There are three investment portfolios available, namely Project A and B, Project A and C, and Project B and C.
(4)The best investment decision is to choose portfolio of Project B and C.
Reason: The ranking of present value index from high to low is Project B, Project C, and Project A.Therefore, the combination of Project B and C should be selected.