29 The following questions pertain to the Star Oil capital budgeting example of Section 3.6. The LINDO
Question:
29 The following questions pertain to the Star Oil capital budgeting example of Section 3.6. The LINDO output for this problem is shown in Figure 16.
a Find and interpret the shadow price for each constraint.
b If the NPV of investment 1 were $5 million, would the optimal solution to the problem change?
c If the NPV of investment 2 and investment 4 were each decreased by 25%, would the optimal solution to the problem change? (This part requires knowledge of the 100% Rule.)
d Suppose that Star Oil’s investment budget were changed to $50 million at time 0 and $15 million at time 1. Would Star be better off? (This part requires knowledge of the 100% Rule.)
e Suppose a new investment (investment 6) is available.
Investment 6 yields an NPV of $10 million and requires a cash outflow of $5 million at time 0 and $10 million at time 1. Should Star Oil invest any money in investment 6?
Step by Step Answer:
Operations Research Applications And Algorithms
ISBN: 9780534380588
4th Edition
Authors: Wayne L. Winston