Capital Budgeting - Selecting projects to maximize Total Net Present Value

A company has 9 independent projects under consideration.The NPV is the

expected discounted Net Present Value of each of the 9 projects and includes

all expenditures and revenue over the life of each of the 9

projects.The expenditures are the amount of millions of dollars

required by each of the 9 projects in years #1 and year #2.Since

these are projects - each project can only be done once and a project can not

be partially done - it is all or nothing!

You need to select the project mix that gives the best total NPV.for example

if you pick only project 1 it will generate $14 million in Net Present Value

and the estimated cost is $12 million in year 1 and $3 million in year 2. During

year #1 you only have $50 million that you are allowed to spend (budget)

During year #2 you only have $20 million that you are allowed to spend (budget)

Question:Which project or projects should be done to

maximize the Total NPV? What is the maximum NPV and how many millions of budget

will be required in Year 1 & 2 to achieve this maximum NPV?

Note:

All $ are in Millions EXPENDITURE

PROJECT NPV YEAR1 YEAR2

1 $14 $12 $3

2 $17 $54 $7

3 $17 $6 $6

4 $15 $6 $2

5 $40 $30 $35

6 $12 $6 $6

7 $14 $48 $4

8 $10 $36 $3

9 $12 $18 $3

Amount

available to spend: $50 $20

Note:

If you are having problems with Solver - it is not giving you the answers you expect then

a)reset Solver back to the default and then

b)renter the Solver parameters