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Question 9.P.7: The Clearwater Company has a budget of $500000 which can be ......

The Clearwater Company has a budget of $500000 which can be spent on the five independent projects of Table 9-7. If MARR = 20%, how should the budget be allocated?

Table 9-7

Project

Number

 i*

Total

Project

Cost
1 29.10% $150 000
2 10.50% 50000
3 21.50% 200000
4 19.50% 75000
5 23.20% 25 000
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The selection algorithm for independent projects gives:

Step 2 Eliminate projects 2 and 4.

\begin{matrix} \text{Step 3} & Select & Project\ 1 & &\$150\ 000 \\ &&Project\ 5 & &25 000\\ & & Project\ 3 & & 200\ 000 \\ & & & TOTAL & \overline{\$375\ 000} \end{matrix}

with $500 000 – $375 000 = $125 000 unspent.

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