Considering five possible development projects

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Reference no: EM132165427

A real-estate development firm, Peterson and Johnson, is considering five possible development projects. Using units of millions of dollars, the following table shows the estimated long- run profit (net present value) that each project would generate, as well as the amount of investment required to undertake the project.

Development Project

1 2 3 4 5

Estimated profit $1 $1.8 $1.6 $0.8 $1.4

(millions)

Capital required 6 12 10 4 8

(million)

The owners of the firm, Dave Peterson and Ron Johnson, have raised $20 million of investment capital for these projects. Dave and Ron now want to select the combination of projects that will maximize their total estimated long-run profit (net present value) without investing more than $20 million.

a. Formulate a BIP model in algebraic form for this problem.

b. Formulate and solve this model on a spreadsheet.

Reference no: EM132165427

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