In the capital budgeting model in Figure 6.5, investment 4 is tied for the largest ROI, but it is not selected in the optimal solution. How much NPV will be lost if Tatham is forced to select investment 4? Answer by solving a suitably modified model.

Figure 6.5:

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Capital Budgeting Model Н G. 1 Capital budgeting model Range names used Budget Decisions =Model!$B$10:$H$10 Total_cost=Model!$B$14 Total_NPV=Model!$B$17 =Model!$D$14 3 Input data on potential investments ($ millions) 4 Investment 5 |Cost 2 $2.4 $2.7 12.5% 3 $3.5 $3.9 11.4% 4 $6.9 $4.5 $5.9 $6.8 15.3% $5.0 $5.6 $3.0 $3.3 10.0% 6 NPV 7 ROI $7.7 $5.1 13.3% 12.0% 11.6% 9 Decisions: whether to invest 10 1 if yes, 0 if no 11 1. 12 Budget constraint Total cost $14.9 13 14 Budget $15 15 | 16 Objective to maximize | 17 Total NPV $16.7