Fabulous Fabricators needs to decide how to allocate space in its production facility this year. It...

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Fabulous Fabricators needs to decide how to allocate space in its production facility this year. It is considering the follow

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Answer 1

Answer #1

a.

Contract	NPV	Use of Facility	Profitability Index
A	1.98	100%	1.98
B	1.01	57%	1.77
C	1.46	43%	3.40

Profitability Index = NPV/Use of Facility

b. Fabulous Fabricators should allocate space to contracts B, and C, since the combined profitability index of both is higher than the profitability index of contract A.

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Answer 2

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