INEN625G Homework 2 2010 Solution

INEN625G Homework 2 2010 Solution - INEN625 Graduate...

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INEN625 Graduate Homework 2 Due 2/10/10 Answer the following questions using your own words . Submit one typed copy for your project group. All members who contribute should sign the cover page. 1. Consider five projects that may be undertaken. Projects A and C are mutually exclusive. If projects B and C are correlated and if both done together will result in a total NPV increase of $80,000. Determine the optimal set of projects if only $2,000,000 is available in capital. Prove your solution. Project Project Cost Net Present Value A $1,000,000 $200,000 B $500,000 $120,000 C $800,000 $180,000 D $900,000 $180,000 E $200,000 $90,000
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Together Total Combinations A B C D E Cost NPV Added NPV NPV AB 1 1 0 0 0 $1,500,000 $320,000 $0 $320,000 AC Not feasible because A and C mutually exclusive AD 1 0 0 1 0 $1,900,000 $380,000 $0 $380,000 AE 1 0 0 0 1 $1,200,000 $290,000 $0 $290,000 BC 0 1 1 0 0 $1,300,000 $300,000 $80,000 $380,000 BD 0 1 0 1 0 $1,400,000 $300,000 $0 $300,000 BE 0 1 0 0 1 $700,000 $210,000 $0 $210,000 CD 0 0 1 1 0 $1,700,000 $360,000 $0 $360,000 CE 0 0 1 0 1 $1,000,000 $270,000 $0 $270,000 DE 0 0 0 1 1 $1,100,000 $270,000 $0 $270,000 ABC Not feasible because A and C mutually exclusive ABD 1 1 0 1 0 $2,400,000 Over budget ABE 1 1 0 0 1 $1,700,000 $410,000 $0 $410,000 ACD Not feasible because A and C mutually exclusive ACE Not feasible because A and C mutually exclusive ADE 1 0 0 1 1 $2,100,000 Over budget BCD 0 1 1 1 0 $2,200,000 Over budget BCE 0 1 1 0 1 $1,500,000 $390,000 $80,000 $470,000 Maximum NPV is $470,000 by doing BC and E BDE 0 1 0 1 1 $1,600,000 $390,000 $0 $390,000 CDE 0 0 1 1 1 $1,900,000 $450,000 $0 $450,000 ABCD Not feasible because A and C mutually exclusive ABCE Not feasible because A and C mutually exclusive ABDE 1 1 0 1 1 $2,600,000 Over budget ACDE Not feasible because A and C mutually exclusive BCDE 0 1 1 1 1 $2,400,000 Over budget
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This note was uploaded on 02/21/2012 for the course INEN 620 taught by Professor Black during the Spring '12 term at UNC Asheville.

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INEN625G Homework 2 2010 Solution - INEN625 Graduate...

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