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Y3 X1 1
Y4 X2 1
Y5 X3 1
Y6 X4 1
Y7 X5 1
Y8 X6 1
X j 0 For all j
Dual:
Find Y1, Y2, Y3, . . . ,Y8 so as to
MinW = 97,500 Y1 +29,000 Y2 + Y3 + Y4 + Y5 + Y6 + Y7 + Y8
Subject to:
X1 10,000 Y1 + 5,000 Y2 + Y3 4075
X6 35,000 Y1 + Y8 6585
Y j 0 For all j
X j = 0 or 1, j = 1,2, . . . ,6
X1 X 2 X 3 1
X2 X4 0
X j = 0 or 1, j = 1,2, . . . ,6
XC XA 0
X A , X B , X C 0 or 1
{Value of extra budget money @ t=2 is 0}
4) Assume that fractional funding is NOT allowed
NPV Calculations: Project A: NPV = 1536; Project B: NPV = 2026
Project C: NPV = 2547 (rounded to the nearest dollar).
Decision variables: Xj = 0, if project j is not selected,
= 1, if it is selected.
Find X A , X B , X C so as to
XA XB 0
X A , X B , X C 0 or 1
{Value of extra budget money @ t=2 is 0}
5) Decision variables: Xj = fractional level of funding of project j, j = 1,2,3,4.
Find Xj , j = 1,2, 3, 4
So as to:
MaxZ 1,592X1 930X 2 1,344X 3 681X 4
Subject to:
Dual
Y1 1,000 X 1 +2,000 X 2 +1,000 X 3 +3,000 X 4 5,000
Y3 X1 1
Y4 X2 1
Y5 X3 1
Y6 X4 1
X j 0 For all j
b) Y1 =681/3000=.23
Y2 =0 (surplus capital @ t=1)
Y3 proj. 1: cost = 1000*.23 = $230
Return = 1592
Net cash inflow = 1592-230 = 1362
Y4 proj. 2: cost = 2000*.23 = $460
Return = 930
Net cash inflow = 930 460 = 470
Y5 proj. 3: cost = 1000*.23 = $230
Return = 1344
Net cash inflow = 1344-230 = 1114
Y6 =0
Y1 =$0.23; Y2 =0; Y3 =$1362; Y4 =$470; Y5 =$1,114, Y6 =0