15. The City of Clyde, Ohio is using the binary linear programming (BLP) formulation of a capital budgeting problem shown below. Assume $175,000 is available for investment and all investments are indivisible; MARR 5 12%;

n 5 10 yrs. Given the incomplete SOLVER parameter box shown, respond to parts a–f below if it is desired to obtain an optimum investment portfolio.

a. Specify the contents of the target cell.

b. Specify the contents for By Changing Cells.

c. Specify all constraints to be added.

d. Now, suppose the original problem is modifi ed so that investments 1 and 2 are mutually exclusive. Show how you would incorporate that constraint in SOLVER.

e. Now, suppose the original problem is modifi ed so investment 2 is contingent on investment 3 being pursued. Show how you would incorporate that constraint in SOLVER.

f. Now, suppose the original problem is modifi ed to specify that at least three and no more than four investments can be pursued. Show how you would incorporate that constraint in SOLVER.

Transcribed Image Text:

B D E G I 1 2 LINEAR PROGRAMMING FORMULATION FOR A CAPITAL BUDGETING PROBLEM 3 INVESTMENT OPPORTUNITY 1 4 INITIAL INVESTMENT 5 ANNUAL RETURN 6 SALVAGE VALUE 7 PRESENT WORTH 8 INTERNAL RATE OF RETURN 9 VALUE OF X 10 PORTFOLIO INVESTMENT 11 PORTFOLIO PRESENT WORTH 12 MARR 2 3 4 5 6 $20,000.00 $40,000.00 $30,000.00 $50,000.00 $75,000.00 $60,000.00 $2,600.00 $5,025.00 $3,750.00 $6,775.00 $9,350.00 $7,850.00 $20,000.00 $40,000.00 $30,000.00 $50,000.00 $75,000.00 $60,000.00 $1,130.04 $1,271.30 $847.53 $4,378.92 $1,977.58 $3,672.64 13.00% 12.56% 12.50% 13.55% 12.47% 1 1 1 1 1 13.08% 1 $20,000.00 $40,000.00 $30,000.00 $50,000.00 $75,000.00 $60,000.00 $275,000.00 $1,130.04 $1,271.30 $847.53 $4,378.92 $1,977.58 $3,672.64 $13,278.02 CAP CONSTRAINT 12% 10 $175,000.00 13 INVESTMENT PERIOD 14 Solver Parameters 15 16 17 Set Target Cell: Solve 18 Equal To: Max Min O Value of: 0 Close 19 By Changing Cells: 20 21 Guess 22 23 Subject to the Constraints: Options 24 Add 25 26 Change 27 Reset All 28 Delete 29 Help 30 31