Capital Budgeting Solved Problems

Capital Budgeting Solved Problems-42
The capital budgeting or capital rationing problem is to select from a set of alternative projects a portfolio of projects that provides the greatest economic return while not exceeding a budget on the amount of the total initial capital investment.To setup and solve such a problem select is used, that add-in must be installed.The initial solution has no projects selected, so the cell evaluates to zero. Its green color indicates that the program will fill this cell with the results of an algorithm.

When this button is not selected the upper bounds on the variables are set to larger values allowing multiple copies of an item to be selected.

The project below was created to replace to replace Proj. The Project Definition may be arbitrarily complex with several investments and a variety of cash flows.

Such a project must be linked to the capital budgeting region of the worksheet.

For example we might require projects 5 and 6 to be mutually exclusive, that is, only one may be chosen. Of course the NPW and IRR of the portfolio are reduced.

Also we might require that if project 9 is selected, project 10 must also be selected. Even though it has a large IRR, project 9 is not advisable when it is necessary to pair it with project 10. This will always be the case for the NPW with added constraints.


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