Practical Management Science
Practical Management Science
6th Edition
ISBN: 9781337406659
Author: WINSTON, Wayne L.
Publisher: Cengage,
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The board of directors of General Wheels Company is considering seven large capital investments. Each investment can be made only
once. These investments differ in the estimated long-run profit (net present value) that they will generate as well as in the amount of
capital required, as shown by the following table.
Investment Opportunity
1
17
2 3 4
10 15 19 7 13 9
5 6 7
Estimated Profit ($million)
Capital Required for
Investment Opportunity
($million)
1 2 3 4 5 6 7
Capital
43 28 34 48 17 32 23
Capital
Available
($million)
115
Click here for the Excel Data File
The total amount of capital available for these investments is $115 million. Investment opportunities 1 and 2 are mutually exclusive, and
so are 3 and 4. Furthermore, neither 3 nor 4 can be undertaken unless one of the first two opportunities is undertaken. There are no
such restrictions on investment opportunities 5, 6, and 7. The objective is to select the combination of capital investments that will
maximize the total estimated long-run profit (net present value).
Formulate and solve a BIP model on a spreadsheet for this problem.
a. Determine the combination of capital investments that will maximize profit.
Note: Leave no cells blank. Enter "O" wherever required.
Undertake? (Enter 1 if "Yes", 0 if "No")
b. Determine the total profit.
Investment
Investment
Investment
Investment
Investment
Investment
Investment
Opportunity 1 Opportunity 2 Opportunity 3 Opportunity 4 Opportunity 5 Opportunity 6 Opportunity 7
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Transcribed Image Text:The board of directors of General Wheels Company is considering seven large capital investments. Each investment can be made only once. These investments differ in the estimated long-run profit (net present value) that they will generate as well as in the amount of capital required, as shown by the following table. Investment Opportunity 1 17 2 3 4 10 15 19 7 13 9 5 6 7 Estimated Profit ($million) Capital Required for Investment Opportunity ($million) 1 2 3 4 5 6 7 Capital 43 28 34 48 17 32 23 Capital Available ($million) 115 Click here for the Excel Data File The total amount of capital available for these investments is $115 million. Investment opportunities 1 and 2 are mutually exclusive, and so are 3 and 4. Furthermore, neither 3 nor 4 can be undertaken unless one of the first two opportunities is undertaken. There are no such restrictions on investment opportunities 5, 6, and 7. The objective is to select the combination of capital investments that will maximize the total estimated long-run profit (net present value). Formulate and solve a BIP model on a spreadsheet for this problem. a. Determine the combination of capital investments that will maximize profit. Note: Leave no cells blank. Enter "O" wherever required. Undertake? (Enter 1 if "Yes", 0 if "No") b. Determine the total profit. Investment Investment Investment Investment Investment Investment Investment Opportunity 1 Opportunity 2 Opportunity 3 Opportunity 4 Opportunity 5 Opportunity 6 Opportunity 7
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