The statement is false.
When there is a capital constraint , a firm should invest in those assets which gives higher value. The relevant index helps in determining the actual profitability index rate not the present rate.
Therefore, the projects that should be selected are the ones with the highest profitability index.
What is Capital Constraint ?
Capital constraint is net capital available for spending during a designated period of time. Properties are considered value added when they exhibit management or operational problems and/or suffer from capital constraints.
Capital constraint = cash flow – contingency
The company makes decisions with regard to
Hence, The given state is false.
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