CEOs project selection

John is a CEO of an investment company and he is provided with 5 different potential projects and must determine which projects to choose. The projects require different amounts of capital and different expected net present values (NPV) over the next three years.

Capital Required (in $000s)

Project NVP (in $000s) Year 1 Year 2 Year 3

1 140 70 20 25

2 180 85 40 15

3 120 60 20 20

4 80 30 30 15

5 200 50 15 10

Determine which set of projects should be selected in order to achieve the maximum net present value if the decision maker has $150,000 available for investment each year.

Determine which set of projects should be selected in order to achieve the maximum net present value if the following two conditions must also be met:

a) If project 1 is selected, then project 2 must be selected, and vice versa.

b) Since projects 4 and 5 require outsourcing various operations, John wants at most one of these projects to be included in the solution and not both