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Gamma Company is planning to invest in several of eight (8) projects. Unfortunately, it faces a range of constraints such as budgetary, number of projects

Gamma Company is planning to invest in several of eight (8) projects. Unfortunately, it faces a range of constraints such as budgetary, number of projects that it can supervise, and the relationship among projects (contingent and/or duplicative).

The Company is seeking your assistance in selecting the projects that will maximize its Net Present Worth given the set of constraints.

Projects

Initial Cost

NPW

A

250,000

40,000

B

300,000

35,000

C

225,000

50,000

D

400,000

70,000

E

350,000

65,000

F

275,000

80,000

G

180,000

45,000

H

325,000

75,000

(xxx) = Negative NPW; MARR = 10%

a) Budget = $1,500,000

b) Use the NPW decision criterion to determine the best feasible bundle of

projects.

c) Investing in project C is contingent on investing in projects E and H.

d) Project A must be selected.

The best investment bundle consists of projects a) ABCEH; b) ABDEH; c) ACDEHG; d) ACDFH

The NPW ($) of the best investment bundle is a) 265,000; b) 285,000; c) 325,000; d) 305,000

The total cost ($) of the best investment bundle is a) 975,000; b) 1,295,000; c) 1,365,000; d) 1,475,000.

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