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Capital Rationing with Linear Programming

This document discusses using linear programming for capital rationing projects over multiple years. It explains that for two projects, normal linear programming concepts are used, while for three projects the simplex method would be used. Notes provide details on setting the objective function to maximize NPV, including constraints for limited finance, and defining project variables as either indivisible (0 or 1) or divisible (between 0 and 1). Questions are presented on using these concepts for capital rationing problems involving two, five, and four projects.

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263 views4 pages

Capital Rationing with Linear Programming

This document discusses using linear programming for capital rationing projects over multiple years. It explains that for two projects, normal linear programming concepts are used, while for three projects the simplex method would be used. Notes provide details on setting the objective function to maximize NPV, including constraints for limited finance, and defining project variables as either indivisible (0 or 1) or divisible (between 0 and 1). Questions are presented on using these concepts for capital rationing problems involving two, five, and four projects.

Uploaded by

osama
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Capital rationing + linear

By Taha Popatia
We use linear programming for capital rationing when there are multiple years.

For two projects – use normal linear programming concepts

For three projects – Simplex method (not in syllabus)

Note

1. Objective function (maximize npv)


2. Constraints ( finance is limited)
3. Variables set @
For indivisible projects – 0 OR 1 (whole project or no project)
For divisible projects – 0 – 1 (any value between zero and one , you can
carry on any propotion of total project) ( greater than or equal to zero or
less than or equals to 1 )

Question 1 (Two projects)

1|P ag e
Capital rationing + linear
By Taha Popatia

Question 2 (five projects)

2|P ag e
Capital rationing + linear
By Taha Popatia

Question 3 (Four Projects)

3|P ag e
Capital rationing + linear
By Taha Popatia

4|P ag e

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