Your consulting firm has been doing well, and you believe it is time to add a new, related area of engineering services. To do so, you have identified the following five independent, indivisible, equal-lived investments, each of which guarantees you can exit it after 4 years and have your initial investment returned to you. Each year, you receive an annual return as noted below. Your MARR is 10 percent, and you have \(\$ 250,000\) to invest.

For the original problem:

a. Which alternatives should you select to form the optimum portfolio?

b. What is the present worth of your selected portfolio?

c. What is the IRR for the optimum portfolio?
In addition to the original problem statement, you now believe that Investments 4 and 5 should be considered mutually exclusive.

d. Which alternatives should you now select?

e. What is the present worth for this portfolio?

f. What is the IRR now?
Reconsider the original problem using SOLVER for sensitivity analysis:
g. 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.
h. 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:

Investment 1 2 3 4 5 Initial Investment $45.000 $60,000 $85,000 $100,000 $75,000 Annual Return $4,000 $7,0XX0 $9,000) $12,0XX) $11,000