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Lecture 03/03/08
1. LP Formulation Examples
a. Capital Budgeting Problem
b. Use of Solver to Solve LPs
c. Blending Problems
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Example 10, Page 80 in Text
Star Oil is considering 5 investment opportunities.
The cash outflows and NPV’s (in millions of dollars)
are given in following table:
Funds
Inv.1
Inv.2
Inv.3
Inv.4
Inv.5 Avail
Time 0 Cash Outflow
$11
$53
$5
$5
$29
$40
Time 1 Cash Outflow
$3
$6
$5
$1
$34
$20
NPV
$13
$16
$16
$14
$39
Star Oil wishes to find the fraction of each investment to
purchase so that
total NPV of investments 15 is maximized.
Example
Definition of variables
Let x
i
= fraction of investment i that is purchased i=1,2,.
.,5
Constraints
11x
1
+ 53x
2
+ 5x
3
+ 5x
4
+ 29x
5
≤
40
(Fund Availability
for Time 0)
3x
1
+ 6x
2
+ 5x
3
+ x
4
+ 34x
5
≤
20
(Fund Availability
for Time 1)
0
≤
x
i
≤
1
for i=1,2,…5
since
x
i
is a fraction.
Objective Function
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This note was uploaded on 04/17/2008 for the course CSA 273 taught by Professor Patton during the Spring '08 term at Miami University.
 Spring '08
 Patton

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