Formulate capital budgeting integer programming problem

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Reference no: EM132159516

Cash Requirements

Proposal NPV Year 1 Year 2 Year 3

1 12.8 4.40 3.30 3.50

2 10.5 4.30 2.50 2.10

3 9.4 4.10 3.40 1.50

4 11.7 4.70 3.90 3.10

5 10.2 5.00 3.40 0.75

The manager wants to maximize the total NPV while meeting the following restrictions:

(i) The total cash requirement cannot exceed 14.2 million dollars in the first year.

(ii) The total cash requirement cannot exceed 12.8 million dollars in the second year.

(iii) The total cash requirement cannot exceed 10 million dollars in the third year.

(iii) At most three of the proposals can be approved.

(iv) If proposal 1 is approved then proposal 3 must also be approved.

Formulate a capital budgeting integer programming problem for this situation by defining

(a) The decision variables.

(b) The objective function. What does it represent?

Note: Do NOT solve the problem after formulating.

Reference no: EM132159516

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