. Proposals A, B, C, D, E and F are being considered with money flows over 10 ye
ID: 2720561 • Letter: #
Question
. Proposals A, B, C, D, E and F are being considered with money flows over 10 years.
A
B
C
D
E
F
Investment
$25,000
$10,000
$40,000
$45,000
$15,000
$55,000
Net Annual Benefit
$7,000
$2,200
$10,000
$12,000
$2,800
$14,000
Salvage Value
$3,000
$0
$5,000
$2,000
$500
0
Proposal (A and D) are mutually exclusive, (C and F) are also mutually exclusive, and proposal B depends on C or F. The MARR is set at 10%. a) Formulate the problem with Integer Programming. b) Which proposal(s) should be selected if the amount of money available for investment is $100,000?
A
B
C
D
E
F
Investment
$25,000
$10,000
$40,000
$45,000
$15,000
$55,000
Net Annual Benefit
$7,000
$2,200
$10,000
$12,000
$2,800
$14,000
Salvage Value
$3,000
$0
$5,000
$2,000
$500
0
Explanation / Answer
Particulars A B C D E F Investments 25,000 10,000 40,000 45,000 15,000 55,000 Net Annual Benefit 7,000 2,200 10,000 12,000 2,800 14,000 Salvage Value 3,000 - 5,000 2,000 500 - Present Value of Cash Inflows 44,169 13,518 63,373 74,506 17,398 86,024 (Net Annual Benefit * Cumulative Discounting Factor for 10 years) + (Salvage Value * Discounting Factor for 10th Year @ 10%) Net Present Value (Present Value of Cash Inflows - Investments) 19,169 3,518 23,373 29,506 2,398 31,024 Since Project A & D are mutually exclusive, Project D would be selected as it has maximum NPV over that of Project A Since Project C & F are mutually exclusive, Project F would be selected as it has maximum NPV over that of Project C Considering capital limit of $ 100,000, entire capital used in Project D & F earning NPV of $ 60,530
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