California MegaTech is a manufacturing company that, due to low interest rates, thinks now may be the time to finance expansion into the Los Angeles and/or San Francisco areas by building factories there. However, the company only has a $10 million capital budget. So management must decide what to build and where in order to maximize the expansion's net present value (NPV). This investment is subject to the following considerations: Net Present Value ($mil) LA SF Capital Required ($mil) LA SF Warehouse 6 4 Warehouse Factory 8 Factory 3 The company is willing to build a factory at either or both locations. The company is willing to build no more than one factory in each location. The company is willing to build only ONE warehouse. The company is willing to build a warehouse ONLY if a factory is built at the same location. Each potential factory/warehouse has capital requirements. Each potential factory/warehouse has a positive net present value. The company is only willing to commit $10 million to the project. What is the proper formulation for this problem? Show objective function, decision variables, and constraints. Assuming the company will build at least one factory or warehouse, identify all feasible combinations of factories and warehouses in LA and SF.

Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
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California MegaTech is a manufacturing company that, due to low interest rates, thinks now may be the
time to finance expansion into the Los Angeles and/or San Francisco areas by building factories there.
However, the company only has a $10 million capital budget. So management must decide what to build
and where in order to maximize the expansion's net present value (NPV). This investment is subject to the
following considerations:
Net Present Value ($mil) LA
SF
Capital Required ($mil)
LA
SF
Warehouse
4
Warehouse
2
Factory
8
Factory
3
The company is willing to build a factory at either or both locations.
The company is willing to build no more than one factory in each location.
The company is willing to build only ONE warehouse.
The company is willing to build a warehouse ONLY if a factory is built at the same location.
Each potential factory/warehouse has capital requirements.
Each potential factory/warehouse has a positive net present value.
The company is only willing to commit $10 million to the project.
A) What is the proper formulation for this problem? Show objective function, decision variables, and constraints.
B) Assuming the company will build at least one factory or warehouse, identify all feasible combinations of
factories and warehouses in LA and SF.
LO
CO
Transcribed Image Text:California MegaTech is a manufacturing company that, due to low interest rates, thinks now may be the time to finance expansion into the Los Angeles and/or San Francisco areas by building factories there. However, the company only has a $10 million capital budget. So management must decide what to build and where in order to maximize the expansion's net present value (NPV). This investment is subject to the following considerations: Net Present Value ($mil) LA SF Capital Required ($mil) LA SF Warehouse 4 Warehouse 2 Factory 8 Factory 3 The company is willing to build a factory at either or both locations. The company is willing to build no more than one factory in each location. The company is willing to build only ONE warehouse. The company is willing to build a warehouse ONLY if a factory is built at the same location. Each potential factory/warehouse has capital requirements. Each potential factory/warehouse has a positive net present value. The company is only willing to commit $10 million to the project. A) What is the proper formulation for this problem? Show objective function, decision variables, and constraints. B) Assuming the company will build at least one factory or warehouse, identify all feasible combinations of factories and warehouses in LA and SF. LO CO
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