Question: Consider the capital budgeting problem where six projects are being considered for execution over the next 3 years. The expected returns for each project and
Consider the capital budgeting problem where six projects are being considered for execution over the next 3 years. The expected returns for each project and the yearly expenditures (in thousands of dollars) are shown in the accompanying table. Assume that each approved project will be executed over the 3-year period. The objective is to select the projects that will maximize the total returns.
| Expenditures for | ||||
| Project | Year 1 | Year 2 | Year 3 | Returns |
| 1 | 5 | 2 | 8 | 20 |
| 2 | 9 | 7 | 9 | 40 |
| 3 | 4 | 6 | 3 | 15 |
| 4 | 7 | 4 | 4 | 21 |
| 5 | 3 | 5 | 2 | 12 |
| 6 | 8 | 4 | 9 | 28 |
| Max. available Funds | 26 | 22 | 25 | |
Formulate the problem as a linear programming problem with additional constraints on decision variables to be 0 or 1.
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