Suppose in the capital budgeting model in Figure 14.40 that each investment requires $2000 during year 2 and only $5000 is available for investment during year 2.
a. Assuming that available money un-invested at the end of year 1 cannot be used during year 2, what combination of investments maximizes NPV?
b. Suppose that any un-invested money at the end of year 1 can be used for investment in year 2. Does your answer to part a change?

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Figure 14.40 Capital Budgeting Model A B C D. F 1 Tatham capital budgeting model 2 3 Input data on potential investments 4 Investment 5 Investment cost 6 NPV 7 NPV per investment dollar 8. 9 Decisions: whether to invest 10 Investment levels 11 12 Budget constraints 13 14 15 16 Objective to maximize 17 Total NPV 18 19 Range names used: 20 Amount_invested 21 Budget 22 Investment_levels 23 Total NPV 3 $3,500 $10,000 2.86 2 7 $5,000 $16,000 $2,500 $8,000 $6,500 $19,500 $7,000 $22,000 $4,500 $12,000 $3,000 $7,500 3.20 3.20 3.25 3.14 2.67 2.50 Amount invested Budget $14,500 $15,000 $46,000 =ModellSB$14 =ModellSD$14 =Modeli$B$10:SH$10 Model!$B$1