Question: 1. A company has nine projects under consideration. The NPV added by each project and the capital required by each project during the next two
1. A company has nine projects under consideration. The NPV added by each project and the capital required by each project during the next two years is shown in the following table. (All numbers are in millions.) For example, Project 1 will add $14 million in NPV and require expen
ditures of $12 million during Year 1 and $3 million during Year 2. During Year 1, $50 million in capital is available for projects, and $20 million is available during Year 2.
If you cant undertake a fraction of a project but must undertake either all or none of a proj- ect, how can you maximize the NPV?
300 CHAPTER 33 Using Solver for capital budgeting
From the Library of Zihe Qi
Suppose that if Project 4 is undertaken, Project 5 must be undertaken. How can you maxi- mize the NPV?
\begin{tabular}{l|l|l|l} \hline & NPV & Year 1 expenditure & Year 2 expenditure \\ \hline Project 1 & 14 & 12 & 3 \\ \hline Project 2 & 17 & 54 & 7 \\ \hline Project 3 & 17 & 6 & 6 \\ \hline Project 4 & 15 & 6 & 2 \\ \hline Project 5 & 40 & 32 & 35 \\ \hline Project 6 & 12 & 6 & 6 \\ \hline Project 7 & 14 & 48 & 4 \\ \hline Project 8 & 10 & 36 & 3 \\ \hline Project 9 & 12 & 18 & 3 \\ \hline \end{tabular}Step by Step Solution
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