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Capital Budgeting: Financial Appraisal of Investment Projects

Don Dayananda, Richard Irons, Steve Harrison, John Herbohn, Patrick Rowland

Chapter 11

Resource constraints and linear programming - all with Video Answers

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Chapter Questions

Problem 1

Refer to Example 11.1 (product mix problem).
(a) Demonstrate that the optimal values for $x_1$ and $x_2$ in the solution satisfy the original constraints by substituting the values into the three constraints.
(b) Write the raw material A constraint by increasing its RHS value by 1 from 80 to 81 , while keeping the other values in the problem unchanged. Solve the resulting new LP problem and demonstrate that the value of the objective function increases by the amount of the relevant shadow price, which is 30 , from 3,900 to 3,930 .

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Problem 2

Refer to Example 11.2 (capital rationing problem).
(a) Represent the problem in graphical form and find the optimal solution using the graphical method.
(b) Solve the capital rationing problem using Excel Solver and compare your results with the solution details provided in Workbook 11.2.
(c) Confirm that the objective function increases by the value of the shadow price of the by-product requirement constraint $(0.175)$ by appropriately reformulating the capital rationing problem and solving it.

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01:17

Problem 3

Refer to Example 11.3 (project portfolio selection problem).
(a) Formulate the problem as an LP problem by specifying the information in terms of a set of linear equations.
(b) Solve the problem and compare your results with those provided in Workbook 11.3 .

AG
Ankit Gupta
Numerade Educator