=7.2. Reconsider the California Manufacturing Co. case study presented in Section 7.1. The mayor of San Diego now has contacted the company’s president, Armando Ortega, to try to persuade him to build a factory and perhaps a warehouse in that city. With the tax incentives being offered the company, Armando’s staff estimates that the net present value of building a factory in San Diego would be $7 million and the amount of capital required to do this would be $4 million. The net present value of building a warehouse there would be $5 million and the capital required would be $3 million. (This option will only be considered if a factory also is being built there.)

Armando has asked Steve Chan to revise his previous management science study to incorporate these new alternatives into the overall problem. The objective still is to find the feasible combination of investments that maximizes the total net present value, given that the amount of capital available for these investments is $10 million.