Spencer Enterprises

Parameters
Capital Requirements
AlternativeNPV Year 1 Year 2 Year 3
1 -a $4,000 $3,000 $1,000 $4,000
2 -b $6,000 $2,500 $3,500 $35,000
3 -c $10500 $6,000 $4,000 $5,000
4 -d $4,000 $2,000 $1,500 $1,800
5 -e $8,000 $5,000 $1,000 $4,000
6 -f $3,000 $1,000 $500 $900

Year 1 Year 2 Year 3

Funds Available $10,500 $7,000 $8,750 ≥
≤
Model

Alternative Select?
1 0 Year 1 Year 2
2 0 Funds Used $0 $0
3 1
4 1 NPV
5 0
6 1
a) objective function: Maximize (Z) = 4000a +6000b+ 10500c+ 4000d+ 8000e+ 3000f
constraints:
3000a+ 2500b+ 6000c+ 2000d+ 5000e+ 1000f ≤10500
1000a+ 3500b+ 4000c+ 1500d+ 1000e+ 500f ≤ 7000
4000a+ 3500b+ 5000c+ 1800d+ 4000e+ 900f ≤8750

NPV $ 4,000 $ 6,000 $10500 $ 4,000 $ 8,000 $ 3,000

year 1 $ 3,000 $ 2,500 $ 6,000 $ 2,000 $ 5,000 $ 1,000
year 2 $ 1,000 $ 3,500 $ 4,000 $ 1,500 $ 1,000 $ 5,000
year 3 $ 4,000 $ 3,500 $ 5,000 $ 1,800 $ 4,000 $ 900
thus, the alternatives which should be chosen to maximize NPV to $17500 are, test market new product, advertisin

b) objective function: Maximize (Z) = 4000a +6000b+ 10500c+ 4000d+ 8000e+ 3000f
constraints:
Year 3 3000a+ 2500b+ 6000c+ 2000d+ 5000e+ 1000f ≤10500
$0 1000a+ 3500b+ 4000c+ 1500d+ 1000e+ 500f ≤ 7000
4000a+ 3500b+ 5000c+ 1800d+ 4000e+ 900f ≤8750

since only one warehouse expansion project can be implemented, the contraint will be as fol

any one warehouse expansion project 0≤ 1

c) a) objective function: Maximize (Z) = 4000a +6000b+ 10500c+ 4000d+ 8000e

constraints:
3000a+ 2500b+ 6000c+ 2000d+ 5000e+ 1000f ≤10500
1000a+ 3500b+ 4000c+ 1500d+ 1000e+ 500f ≤ 7000
4000a+ 3500b+ 5000c+ 1800d+ 4000e+ 900f ≤8750
a+b≤1
c≤d
a,b,c,d,e,f=0 or 1

any one warehouse expansion project 0≤

advertise and constraint 0≤
 total NPV 17500
$ 25,000
$ 19,500 ≤ 10500
$ 16,000 ≤ 7000
$ 19,200 ≤ 8750
ew product, advertising campaign and purchase new equipment.

d+ 8000e+ 3000f

contraint will be as follows: a+b≤1

0500c+ 4000d+ 8000e+ 3000f

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