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The board of directors of General Wheels Co. is considering six large capital investments. Each investment can be made only once. These investments differ in the estimated long-run profit (net present value) that they will generate as well as in the amount of capital required, as shown by the following table (in units of millions of dollars):

The total amount of capital available for these investments is $100 million. Investment opportunities 1 and 2 are mutually exclusive, and so are 3 and 4. Furthermore, neither 3 nor 4 can be undertaken unless one of the first two opportunities is undertaken. There are no such restrictions on investment opportunities 5 and 6. The objective is to select the combination of capital investments that will maximize the total estimated long-run profit (net present value).

(a) Formulate a BIP model for this problem.

(b) Use the computer to solve this model.

What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...

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