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Département de science économique Department of Economics ENGINEERING ECONOMICS ECO 1192B Blue Assignment #2: Capital Budgeting C

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Département de science économique

Department of Economics

ENGINEERING ECONOMICS

ECO 1192B

Blue Assignment #2: Capital Budgeting

C.Theoret Winter 2021

Assignment Instructions

1. Completing an unallocated assignment will result in a zero (0%) score.

2. You will submit your assignment #2 answers on Brightspace on April 1 between 7 and 7:30 pm (Ottawa, Ontario time).

3. Assignment answers submitted late or by other means will be rejected.

4. The sequence of assignment questions in this document will be maintained on April 1 (i.e., no question scrambling)

5. Where appropriate

• Four options will be provided for an assignment question.
• Options will consist of ranges of dollars, percentages etc. depending on the question.

6. Please consult the appropriate Background Paper on Brightspace for assistance or seek assistance during my weekly office hour.

B. Problem Statement

The Delta Power Company is planning to invest in several of eight (8) projects.

Unfortunately, it faces a range of constraints such as budgetary, number of projects that it can supervise, and the relationship among projects (contingent and/or duplicative).

The Company is seeking your assistance in selecting the projects that will maximize its Net Present Worth given different sets of constraints.

All projects have the same lifespan.

Projects	Initial Cost	NPW
A	450,000	130,000
B	375,000	85,000
C	250,000	60,000
D	400,000	80,000
E	325,000	75,000
F	475,000	90,000
G	425,000	79,000
H	390,000	95,000
MARR = 10%

 

Questions 1 to 3

a) Budget = $2,000,000; MARR = 10%.

b) Use the NPW decision criterion to determine the “best” feasible bundle of independent projects.

1. The best investment bundle consists of projects

2. The NPW (§$) of the best investment bundle is

3. The total cost ($) of the best investment bundle is

Questions 4 to 6

a) Budget = $2,000,000; MARR = 10%.

b) A maximum of four (4) projects can be selected.

c) Individual projects must have a first (initial) cost > $350,000.

d) Use the NPW decision criterion to determine the “best” feasible bundle of independent projects.

4. The best investment bundle consists of projects

5. The NPW ($) of the best investment bundle is

6. The total cost ($) of the best investment bundle is

Questions 7 to 9

a) Budget = $1,800,000; MARR = 10%.

b) Projects B, F and H must be included in the best bundle.

c) A maximum of five (5) projects can be selected.

d) Use the NPW decision criterion to determine the “best” feasible bundle of independent projects.

7. The best investment bundle consists of projects

8. The NPW ($) of the best investment bundle is

9. The total cost ($) of the best investment bundle is

Questions 10 to 12

a) Budget = $1,700,000; MARR = 10%.

b) Projects A, D and G are duplicative. Select at most one project.

c) Projects B and E must be excluded from the best bundle.

d) Use the NPW decision criterion to determine the “best” feasible bundle of projects.

10. The best investment bundle consists of projects

11. The NPW ($) of the best investment bundle is

12. The total cost ($) of the best investment bundle is

Questions 13 to 15

a) Budget = $2,500,000; MARR = 10%.

b) Projects A, B and F must be selected.

c) Projects C, D and G overlap significantly. Select at most one project.

d) A maximum of five (5) projects must be selected.

e) Use the NPW decision criterion to determine the “best” feasible bundle of projects.

13. The best investment bundle consists of projects

14. The NPW ($) of the best investment bundle is

15. The total cost ($) of the best investment bundle is

Questions 16 to 19

a) Budget = $2,200,000; MARR=10%.

b) The selection of projects A or C is contingent on the selection of project H.

c) Projects B, D and G must be selected.

d) A maximum of five (5) projects can be selected.

e) Use the NPW decision criterion to determine the “best” feasible bundle of projects.

16. The best investment bundle consists of projects

17. The NPW ($) of the best investment bundle is

18. The total cost ($) of the best investment bundle is

19. Which project in the best bundle is ranked highest?

Questions 20 to 23

a) Budget = $2,300,000

b) Investing in project B is contingent on investing in all of D, E and F.

c) Investing in project C is contingent on investing in either A or G.

d) Projects A, C and G are mutually exclusive. Select at most one (1) project.

e) Use the NPW decision criterion to determine the “best” feasible bundle of projects.

20. The best investment bundle consists of projects.

21. The NPW ($) of the best investment bundle is

22. The total cost ($) of the best investment bundle is

23. Which project in the best bundle is ranked second highest?

Questions 24 to 26

a) Budget = $1,500,000

b) Investing in project A is contingent on investing in all of projects D, E and F.

c) Investing in project B is contingent on investing in at least two of C, G and H.

d) Projects C and H are mutually exclusive. Select at most one (1) project.

e) A maximum of three (3) projects can be selected.

f) Use the NPW decision criterion to determine the “best” feasible bundle of projects.

24. The best investment bundle consists of projects

25. The NPW ($) of the best investment bundle is

26. The total cost ($) of the best investment bundle is

Questions 27 to 30

a) Budget = $1,700,000; MARR = 10%.

b) Projects A, D and G are duplicative. Select at most one project.

c) Projects B and E must be excluded from the best bundle.

d) Project A is contingent on investing in all of projects E and F.

e) Use the NPW/P ratio to determine the “best” feasible bundle of projects.

27. Based on the Net Present Worth criterion, the best investment bundle consists of projects

28. Based on NPW/P ratios, the best investment bundle consists of projects

29. The NPW ($) of the best investment bundle based on the NPW criterion is

30. The NPW ($) of the best investment bundle based on NPW’P ratios is