Consider the following capital rationing problem:
Project | C0 | C1 | C2 | NPV |
W | −10,000 | −10,000 | 0 | +6,700 |
X | 0 | −20,000 | +5,000 | +9,000 |
Y | −10,000 | +5,000 | +5,000 | +0 |
Z | −15,000 | +5,000 | +4,000 | −1,500 |
Financing available | 20,000 | 20,000 | 20,000 |
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Set up this problem as a linear program and solve it.
You can allow partial investments, that is, 0 ≤ x ≤ 1. Calculate and interpret the shadow prices17on the capital constraints.
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