Question

Your company is evaluating the following 9 independent indivisible projects. The company’s capital budgeting for the year is limited to a maximum of $20,000.

Use solver with simplex linear programing method to find the set of projects that should be included in the capital budget. (Mark all that applies)

Project	NPV	cost
A	500.00	2,000.00
B	2,000.00	7,000.00
C	1,800.00	3,000.00
D	3,000.00	5,000.00
E	800.00	2,200.00
F	1,700.00	5,000.00
G	1,800.00	4,000.00
H	3,500.00	5,800.00
I	2,200.00	4,800.00

Answer 1

Whenever there is capital rationing i.e., limited availability of funds and independent projects, we choose PI to evaluate which projects should be chosen. Using PI, projects C, D, H & I should be chosen which totals the cost to $18600 and the NPV from these projects would total to $10500

Projects	NPV	Cost	PI= (NPV / Cost)+1
A	500	2000	1.25
B	2000	7000	1.29
C	1800	3000	1.60
D	3000	5000	1.60
E	800	2200	1.36
F	1700	5000	1.34
G	1800	4000	1.45
H	3500	5800	1.60
I	2200	4800	1.46