Question Type: Microsoft Excel

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:

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