What Is the Minimum Completion Cost of This Project If

question 14

Essay

What is the minimum completion cost of this project if there is a penalty of $1,000 for each day the project lasts longer than 27 days? Activity durations in days and crash costs in dollars are given in the table.
$\begin{array}{|l|l|l|l|l|l|l|l|l|l|}\hline&\text { Reg } & \text { Crash }& \text { Reg } &\text { Crash }&&\text { Reg } & \text { Crash }& \text { Reg } &\text { Crash } \\ \text { Activity }&\text {Length }&\text {Length }&\text {Cost }& \text { Cost }&\text { Activity }&\text { Length }&\text { Length }&\text {Cost }&\text {Cost }\\\hline \mathrm{A} & 7 & 6 & 400 & 1,200 & \mathrm{L} & 7 & 5 & 800 & 1,500 \\\hline \mathrm{C} & 1 & 1 & 450 & 450 & \mathrm{N} & 6 & 5 & 500 & 1,250 \\\hline \mathrm{D} & 9 & 6 & 550 & 2,350 &\mathrm{R} & 4 & 4 & 600 & 600 \\\hline \mathrm{E} & 9 & 7 & 500 & 1,650 & \mathrm{S} & 10 & 8 & 450 & 1,350 \\\hline \mathrm{J} & 2 & 1 & 600 & 1,800 & \mathrm{Y} & 8 & 6 & 675 & 1,750\\\hline \end{array}$

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Definitions:

Face Value

The maturity value of a bond. Also known as par value of bond.

Yield Curve

A graph showing the relationship between bond yields and their maturity dates, which can indicate economic expectations.

Liquidity Premium

Forward rate minus expected future short interest rate.

Interest Rates

The cost of borrowing money or the rate paid for the privilege of using someone else's money, usually expressed as a percentage.