Answer Happy

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, and the capital requirements are summarized in the attached file. The available capital funds over the next three years are $15,000, $10,000 and $15,000. Solve the model to maximize the net present value in dollars. Suppose that one and only one of the warehouse projects must be completed. Modify the formulation to reflect this new situation. What is the new maximum net present value in dollars?

3 Parameters Capital Requirements 5 Alternative NPV Year 1 Year 2 Year 3 6 Limited Warehouse Expansion $4,000 $3,000 $1,000 $4,000 72. Extensive Warehourse Expansion $6,000 $2,500 $3,500 $3,500 8 3. Test Market New Product S10,500 $6,000 $4,000 $5,000 9 4. Advertising Campaign $4,000 $2,000 $1,500 $1,800 10 S, Basic Research $8,000 $5,000 $1,000 $4,000 116. Purchase New Equipment $3,000 $1,000 $500 $900 12 13 Year 1 Year 2 Year 3 14 Funds Available 15 16 Model 17 18 Alternative Select? 19 1 0 Year 1 20 2 0 Funds Used SO 21 3 0 22 4 0 NPV $0 23 5 0 24 6 0 25 26 Year 2 SO + Year 3 SO