Question 4b
Examiners Report
Part (b) required candidates to formulate a multi-period capital rationing model. Very few candidates were able to do this successfully. Many responses tried to calculate the acceptance of projects based on profitability index, which would be used for single-period capital rationing, rather than recognising that this was a multi-period capital rationing problem. There was also some evidence which suggested that candidates did not understand what the word ‘formulate’ meant, although it is used in the study guide.