The ten projects listed below can be either fully funded or not funded at all (i.e., X1, X2, X3, …, X10 = 0 or 1).
The investment cost of each project is incurred in project year zero (PY0). To assure accuracy, copy the cash flow data from a spreadsheet file associated with this quiz rather than entering the cash flow data yourself.
Required: (Attach your computer printout as supporting documentation.) Using a real discount rate of 0.10, determine which projects should be selected against a budget ceiling of ($1,500 K) if
a. Ranking by IRR is the selection method. List the total cost, NPV, IRR, and Profitability Index (PI) of this group of projects, where PI = NPV / |Cost|.
b. Ranking by PI is the selection method. List the total cost, NPV, IRR, and PI of this group of projects.
c. Maximizing total NPV using 0-1 linear programming is the selection method. List the total cost, NPV, IRR, and PI of this group of projects.
d. Maximizing total NPV using 0-1 linear programming is the selection method. Assuming that projects X1 and X4 are mutually exclusive (i.e., X1 + X4 ≤ 1), what is the optimal mix under these conditions?
e. Maximizing total NPV using 0-1 linear programming is the selection method. Assuming that projects X1 and X4 are mutually exclusive (i.e., X1 + X4 ≤ 1), and all projects are divisible (i.e., X1, X2, …, X10 ≤ 1), what is the optimal mix under these conditions?
Tips:
a. Enter the total net cash flow of the selected projects in the columns labeled parts a, b and c before computing the NPV, IRR, and PI of the selected projects.
b. Use the “binary constraint” in Solver to limit the values of X1 through X10 to 0 or 1.
Attachment:- net-cash-flow-for-capital-rationing.xlsx