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. Proposals A, B, C, D, E and F are being considered with money flows over 10 ye

ID: 2720561 • Letter: #

Question

. Proposals A, B, C, D, E and F are being considered with money flows over 10 years.

A

B

C

D

E

F

Investment

$25,000

$10,000

$40,000

$45,000

$15,000

$55,000

Net Annual Benefit

$7,000

$2,200

$10,000

$12,000

$2,800

$14,000

Salvage Value

$3,000

$0

$5,000

$2,000

$500

0

Proposal (A and D) are mutually exclusive, (C and F) are also mutually exclusive, and proposal B depends on C or F. The MARR is set at 10%. a) Formulate the problem with Integer Programming. b) Which proposal(s) should be selected if the amount of money available for investment is $100,000?  

A

B

C

D

E

F

Investment

$25,000

$10,000

$40,000

$45,000

$15,000

$55,000

Net Annual Benefit

$7,000

$2,200

$10,000

$12,000

$2,800

$14,000

Salvage Value

$3,000

$0

$5,000

$2,000

$500

0

Explanation / Answer

Particulars A B C D E F Investments        25,000        10,000        40,000        45,000        15,000        55,000 Net Annual Benefit           7,000           2,200        10,000        12,000           2,800        14,000 Salvage Value           3,000                  -             5,000           2,000              500                  -   Present Value of Cash Inflows        44,169        13,518        63,373        74,506        17,398        86,024 (Net Annual Benefit * Cumulative Discounting Factor for 10 years) + (Salvage Value * Discounting Factor for 10th Year @ 10%) Net Present Value (Present Value of Cash Inflows - Investments)        19,169           3,518        23,373        29,506           2,398        31,024 Since Project A & D are mutually exclusive, Project D would be selected as it has maximum NPV over that of Project A Since Project C & F are mutually exclusive, Project F would be selected as it has maximum NPV over that of Project C Considering capital limit of $ 100,000, entire capital used in Project D & F earning NPV of $ 60,530