A lending firm is considering six independent and indivisible investment alternatives that can be exited with a full refund of the initial investment at any time the firm chooses. A total of \(\$ 200,000\) is available for investment, and the MARR is 10 percent. (Note: There is no planning horizon specified, so the firm can choose any number of years they wish-the optimum portfolio and the IRR will remain the same since the initial investment and the salvage value are the same, and the annual returns are constant each year.)

For the original problem:

a. Which alternatives should the lending firm select as optimal?

b. What is the present worth for the optimum portfolio?

c. What is the IRR for the portfolio?
Several possible constraints have been identified for additional analysis by the lending firm. Determine (1) the optimum investment portfolio, (2) the present worth, and (3) the IRR when

d. Investments 4 and 5 are mutually exclusive.

e. Investment 1 is contingent on Investment 2 being pursued.

f. exactly four investments must be pursued.
g. all of the constraints of Parts \(d\),

e, and \(f\) are considered simultaneously.
Reconsider the original problem using SOLVER for sensitivity analysis:
h. Determine the optimum portfolio (state the investments selected and the portfolio PW) using (1) the current limit on investment capital, (2) plus 20 percent, and (3) minus 20 percent.
i. Determine the optimum portfolio (state the investments selected and the portfolio PW) using (1) the current MARR, (2) plus 20 percent, and (3) minus 20 percent.

Transcribed Image Text:

Alternative 1 2 3 4 5 6 Initial Investment $25,000 $35,000 $30,000 $40,000 $60,000 $50,000 Annual Return $2,600 $3,750 $3,050 $4,775 $6,750 $5,850