Question

Gamma Company is planning to invest in several of eight (8) projects. Unfortunately, it faces a range of constraints such as budgetary, number of projects that it can supervise, and the relationship among projects (contingent and/or duplicative).

The Company is seeking your assistance in selecting the projects that will maximize its Net Present Worth given the set of constraints.

Projects	Initial Cost	NPW
A	250,000	40,000
B	300,000	35,000
C	225,000	50,000
D	400,000	70,000
E	350,000	65,000
F	275,000	80,000
G	180,000	45,000
H	325,000	75,000
(xxx) = Negative NPW; MARR = 10% a) Budget = $1,500,000 b) Use the NPW decision criterion to determine the “best” feasible bundle of projects. c) Investing in project C is contingent on investing in projects E and H. d) Project A must be selected. The best investment bundle consists of projects a) ABCEH; b) ABDEH; c) ACDEHG; d) ACDFH The NPW ($) of the best investment bundle is a) 265,000; b) 285,000; c) 325,000; d) 305,000 The total cost ($) of the best investment bundle is a) 975,000; b) 1,295,000; c) 1,365,000; d) 1,475,000.

Answer 1

The Best Investment Bundle consist of:

D) ACDFH

NOTE: Assuming that Investment in C can be done by either selecting E or H in the portfolio and not necessarily both. Otherwise if both are necessary then ACEFH would be the best.

The NPW of best investment bundle is $315000 - ACDFH.

Note: None of the solution is correct. The correct answer is given above. Also, for ACEFH - NPW $310000.

The total cost of Best Investment Bundle is d.) $1475000.

Note: For ACEFH, Cost is $1425000.