Four projects are available for investment. The projects require the cash flows

Question

Four projects are available for investment. The projects require the cash flows and yield the net present values (NPV) (in millions) shown in Table 62. If $6 million is available for investment at time 0, find the investment plan that maximizes NPV (using Branch and Bound method). SHOW ALL STEPS

3 Four projects are available for investment. The projects require the cash flows and yield the net present values (NPV) (in millions) shown in Table 62. If $6 million is available for investment at time 0, find the investment plan that maximizes NPV. TABLE 62 Cash Outflow Projectat Time O (S) NPV (S 4 4

Explanation / Answer

Project 1 2 3 4 Initial Investment 3 5 2 4 NPV 5 8 3 7 Constraint Capital i.e. 6 million We can either take up one projecy or two or three but initial investment should be less than 6 Million So we can do any of following project or combination of the following project Project 1 2 3 4 1+3 3+4 Initial Investment 3 5 2 4 5 6 NPV 5 8 3 7 8 10 In the above if we do project 3&4 together than it have Maximum NPV i.e. 10 million So we will take up 3rd & 4th project together

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