Problems

1. A company has nine projects under consideration. The NPV added by each project and the capital required by each project during the next two years is shown in the following table. (All numbers are in millions.) For example, Project 1 will add $14 million in NPV and require expenditures of $12 million during Year 1 and $3 million during Year 2. During Year 1, $50 million in capital is available for projects, and $20 million is available during Year 2.

   Open table as spreadsheet

   	NPV	Year 1 expenditure	Year 2 expenditure
   Project 1	14	12	3
   Project 2	17	54	7
   Project 3	17	6	6
   Project 4	15	6	2
   Project 5	40	30	35
   Project 6	12	6	6
   Project 7	14	48	4
   Project 8	10	36	3
   Project 9	12	18	3

   • If we can’t undertake a fraction of a project but must undertake either all or none of a project, how can we maximize NPV?

   • Suppose that if Project 4 is undertaken, Project 5 must be undertaken. How can we maximize NPV?

2. A publishing company is trying to determine which of 36 books it should publish this year. The file Pressdata.xlsx gives the following information about each book:

   • Projected revenue and development costs (in thousands of dollars)

   • Pages in each book

   • Whether the book is geared toward an audience of software developers (indicated by a 1 in column E)

     A publishing company can publish books totaling up to 8500 pages this year and must publish at least four books geared toward software developers. How can the company maximize its profit?