Spencer Enterprises is attempting to choose among a series of new investment alternatives. The potential investment alternatives, the net present value of the future stream of returns, the capital requirements, and the available capital funds over the next three years are summarized as follows. Capital Requirements ($) Net Present Value ($) Year 1 Year 2 Year 3 Alternative Number Alternative 3,500 3,000 1,000 4,000 Limited warehouse expansion Extensive warehouse expansion 5,500 2,500 3,500 3,500 2 11,000 6,000 4,000 5,000 3 Test market new product Advertising campaign 4,500 2,000 1,500 1,800 4 Basic research 8,500 5,000 1,000 4,000 6. Purchase new equipment 3,500 1,000 500 900 10,500 7,000 8,750 Capital funds available An integer programming model for maximizing the net present value (in $) is developed. Letting x,o otherwise Si if investment alternative / is selected for i- 1, 2, 3, 4, 5, 6.) (a) Assume that Test market new product will only be funded if the Basic research is also funded. What additional constraint should be added to the integer programming model? (b) Assume if new equipment is purchased, one of the warehouse expansion projects must be implemented. What additional constraint should be added to the integer programming model?
Spencer Enterprises is attempting to choose among a series of new investment alternatives. The potential investment alternatives, the net present value of the future stream of returns, the capital requirements, and the available capital funds over the next three years are summarized as follows. Capital Requirements ($) Net Present Value ($) Year 1 Year 2 Year 3 Alternative Number Alternative 3,500 3,000 1,000 4,000 Limited warehouse expansion Extensive warehouse expansion 5,500 2,500 3,500 3,500 2 11,000 6,000 4,000 5,000 3 Test market new product Advertising campaign 4,500 2,000 1,500 1,800 4 Basic research 8,500 5,000 1,000 4,000 6. Purchase new equipment 3,500 1,000 500 900 10,500 7,000 8,750 Capital funds available An integer programming model for maximizing the net present value (in $) is developed. Letting x,o otherwise Si if investment alternative / is selected for i- 1, 2, 3, 4, 5, 6.) (a) Assume that Test market new product will only be funded if the Basic research is also funded. What additional constraint should be added to the integer programming model? (b) Assume if new equipment is purchased, one of the warehouse expansion projects must be implemented. What additional constraint should be added to the integer programming model?
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
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Transcribed Image Text:Spencer Enterprises is attempting to choose among a series of new investment alternatives. The potential investment
alternatives, the net present value of the future stream of returns, the capital requirements, and the available capital funds
over the next three years are summarized as follows.
Capital Requirements ($)
Net Present
Value ($)
Year 2 Year 3
Alternative
Number
Year 1
Alternative
3,500
3,000
1,000
4,000
1
Limited warehouse expansion
5,500
2,500
3,500
3,500
Extensive warehouse expansion
Test market new product
11,000
6,000
4,000
5,000
3
Advertising campaign
4,500
2,000
1,500
1,800
8,500
5,000
1,000
4,000
Basic research
Purchase new equipment
3,500
1,000
500
900
6.
Capital funds available
10,500
7,000
8,750
An integer programming model for maximizing the net present value (in $) is developed.
S1 if investment alternative / is selected for i= 1, 2, 3, 4, 5, 6.
(o otherwise
Letting x
%3D
(a) Assume that Test market new product will only be funded if the Basic research is also funded. What additional
constraint should be added to the integer programming model?
(b) Assume if new equipment is purchased, one of the warehouse expansion projects must be implemented. What
additional constraint should be added to the integer programming model?
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