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In: Economics

Cardinal Communications is selecting a new technology. For the project, there are five proposals (A, B,...

Cardinal Communications is selecting a new technology. For the project, there are five proposals (A, B, C, D and E), which are technically compatible or incompatible, relating to each other as follows. A is contingent on B. C and D are mutually excluding. E is contingent on A. Capital constraints for initial investments are $80,000 as maximum initial investment. (a) Which are the options to be considered and the total initial investment required? (b) Which is the option to be selected

Proposal Initial Investments, $ Net Worth after 5 years @ MARR = 16%,

A 20,000 5,000

B 35,000 4,000

C 18,000 3,000

D 12,000 2,000

E 14,000 1,000

Solutions

Expert Solution

Project Inv Net Worth Net Worth/Inv
A 20,000 5,000 0.25
B 35,000 4,000 0.11
C 18,000 3,000 0.17
D 12,000 2,000 0.17
E 14,000 1,000 0.07

Options shall be chosen as per NetWorth/Inv till the total investment is less than 80,000 such that total net worth is maximized.

The investments that shall be chosen are A,B,C
Total Investments = 73,000
Total Net Worth = 5,000+4,000+3,000 = 12,000

Rahul Sunny answered 2 years ago
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