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:
Capital Requirements ($)
Alternative
Net Present Value ($)
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 from 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 from part b to reflect this new situation.