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How do you appraise a project under capital rationing with divisible projects?

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Answer

With a single-period constraint and divisible projects, rank projects by the profitability index (NPV per unit of scarce capital) and allocate funds from the highest PI down until the budget is exhausted, taking a fraction of the last project if divisible. This maximizes total NPV within the capital limit.
Rank by PI = NPV / capital; fund highest first until budget runs out.
Real-world example Under a limited budget, projects are funded in profitability-index order to maximize total value.

Common follow-ups: Why rank by profitability index? | What if the last project is only partly funded?

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All 34 Capital Budgeting questions