Capital Co

question 101

Multiple Choice

Capital Co. is considering which of five different projects to undertake in order to maximize its net present value (NPV) . Define X_i as a binary (0-1) variable that equals 1 if project i is undertaken and 0 otherwise, for i = 1,2,3,4,5. The NPV and required capital (in thousands) for each project are listed below.
Project Net Present Value Capital Required
1 60 7
2 50 10
3 40 6
4 20 3
5 30 12
What is the proper objective function?

• A) Max X₁ + X₂ + X₃ + X₄ + X₅
• B) Min 60X₁ + 50X₂ + 40X₃ + 20X₄ + 30X₅
• C) Max 7X₁ + 10X₂ + 6X₃ + 3X₄ + 12X₅
• D) Max 60X₁ + 50X₂ + 40X₃ + 20X₄ + 30X₅
• E) Min 7X₁ + 10X₂ + 6X₃ + 3X₄ + 12X₅

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Definitions:

Inflation Rate

The inflation rate is the percentage increase in the general level of prices for goods and services over a period of time.

Money Supply Growth Rate

The rate at which the total amount of money in circulation or in existence in a country grows.

Short-Run Phillips Curve

A graphical representation showing the inverse relationship between inflation and unemployment rates in the short term.

Shift Right

In economics, this refers to an increase in supply or demand in a market model, leading to a new equilibrium.