Formulate a capital budgeting problem

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Reference no: EM1385449

The Charm City Company is currently considering 4 proposals for investment. The table below displays each proposal's net present value (NPV) in millions of dollars and each proposal's requirements for cash (in millions of dollars) for each of the next three years.
Cash Requirements

Proposal NPV Year 1 Year 2 Year 3
1 9.0 3.10 3.00 2.20
2 8.6 3.00 2.20 1.80
3 8.9 2.80 3.10 2.20
4 10.2 3.40 3.60 3.00

The manager wants to maximize the total NPV while meeting the following restrictions:

(i) The total cash requirement cannot exceed 9.2 million dollars in the first year.

(ii) The total cash requirement cannot exceed 9.6 million dollars in the second year.

(iii) The total cash requirement cannot exceed 7 million dollars in the third year.

(iii) At most three of the proposals can be approved.

(iv) At least one of the first two proposals must be approved.

Formulate a capital budgeting problem for the above situation by determining

(a) The decision variables.

(b) The objective function.

Note: Do NOT solve the problem after formulating.

Reference no: EM1385449

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