Reference no: EM133048168

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: 512 Chapter 11 Integer Linear Programming Net Present Capital Requirements ($) Alternative Value ($) Year 1 Year 2 Year 3 Limited warehouse expansion 4,000 3,000 1,000 4,000 Extensive warehouse expansion 6,000 2,500 3,500 3,500 Test market new product 10,500 6,000 4,000 5,000 Advertising campaign 4,000 2,000 1,500 1,800 Basic research 8,000 5,000 1,000 4,000 Purchase new equipment 3,000 1,000 500 900 Capital funds available 10,500 7,000 8,750

a. Develop and solve an integer programming model for maximizing the net present value.

b. Assume that only one of the warehouse expansion projects can be implemented. Modify your model of part (a).

c. Suppose that, if test marketing of the new product is carried out, the advertising campaign also must be conducted. Modify your formulation of part (b) to reflect this new situation.