Jambo Chemical Company is considering three possible improvement projects for its plant: 1) A new catalyst. 2) A new software program for the control of operations. 3) Expansion of the storage warehouse.

Capital requirements and limitations in the following two years prevent the firm from undertaking all projects at this time. The net present value (the future value of the project discounted at the present time) of each of the projects, the capital requirements and the funds available for the following two years is presented in the table. You can not do all We want to maximize the net present value of the projects

a) What projects should the company carry out?

b) What is the net present value of the total of the projects to be carried out?

PROJECT NET PRESENT VALUE YEAR 1 YEAR 2

-catalytic converter $25,000 $8000 $7000

-software $18,000 $6000 $4000

-warehouse expansion $32,000 $12,000 $8000

available funds $20,000 $16,000