1) (20 points) Cody Parker is a senior manager who is evaluating four possible projects (A, B, C, and D). Cody can fund any project in part or in total; however, he cannot change the funding percent once the project has started. The costs and revenues associated with any project are a linear function of the funding percent; for example, if Project A is funded at 40 percent, it would cost (.4 x $14 =) $5.6 in year 1 and generate a value to the company's portfolio of (.4 x 10 = ) 4. Also, once a project has started, it cannot be stopped until completed. If the projects are fully funded (at 100 percent), the cash flows for each project over the next three years are indicated in the table below. The positive numbers in the table indicate expenses (cash flows out) while the negative numbers indicate payments to the company (cash flows in). In addition, each project has been valued using a ranking/scoring method described in this chapter; the maximum value of each project is indicated in the table (e.g., Project A would be worth 10 points if fully funded). Project A is a utility project to repair and upgrade the maintenance facility but it will not generate any positive cash flow to the company (thus, only costs are associated with that project). The other three projects represent new products or services that will generate positive cash flows to the company in the third year. Cody wants to maximize the value of his company's project portfolio over the next three years since that will determine his bonus. However, Cody has stated that the total cash flows in each year cannot exceed the budget constraint that was specified by the company's CFO. For example, no more than $50 can be spent in Year 1 as indicated by the budget constraint for Year 1. Max project score Year 1 Year 3 10 Project A* Project B $14 $23 Year 2 $12 $18 $8 $11. $10 $44 2.5 $6 $20 $16 $20 3.5 Project C Project D Budget constraint $50 $40 $0 Cody wants to select a project portfolio that maximizes the total portfolio score, subject to the budget constraints. Each project can be funded between zero percent (no funding) to a maximum of 100 percent (fully funded). a) Given the budget constraints, which projects should Cody recommend for funding? At what level? b) Cody's boss has reconsidered Project A, the utility project to repair the roof. She now feels that only offers a value of 2.0 if fully funded (not 10.0). How does this change the composition of the project portfolio