The portfolio of investment projects below has been proposed for a company for next year:
a. Develop a spreadsheet optimization program to select the optimal portfolio of projects to maximize total portfolio net present value (NPV), given a total budget of $100 million. (This is a simple MILP.)
b. How would the portfolio and NPV change if the budget was increased to $110 million?
c. Because of corporate cost-cutting, the budget is reduced to $80 million. Which projects are now funded and what is the new NPV?
d. Based on your answers to parts (a) to (c), can you draw any conclusions on which projects are likely to be funded regardless of the financial situation?
e. Can you see any problems with this project selection strategy? If so, how would you recommend they should be addressed?