Capital Budgeting Solved Problems

Capital Budgeting Solved Problems-20
For analyses with very many projects, this level of detail may be sufficient.The approach will also work with more complicated projects created with the add-in.The model for the example is shown below with the optimum solution.

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For the example, Proj 8 has a greater IRR than proj 6, but a lower NPW.

Integer programming allows a variety of logical constraints to be imposed upon the solution.

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.

Each project has a button on the worksheet and is shown below.

The solution selects projects 2, 4, 6 and 9 with a total NPW of 3701.

Rather the data can be entered directly by the user in the cells provided.

Aspects of the analysis that depend on the MARR or the IRR are not created for this option.

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.


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