Make up an example, as described in Problem 7, with 20 possible investments. However, do it so the ratios of NPV to cash requirement are in a very tight range, from 3 to 3.2. Then use Solver to find...

Make up an example, as described in Problem 7, with 20 possible investments. However, do it so the ratios of NPV to cash requirement are in a very tight range, from 3 to 3.2. Then use Solver to find the optimal solution when the Solver tolerance is set to its default value of 5%, and record the solution. Next, solve again with the tolerance set to 0%. Do you get the same solution? Try this on a few more instances of the model, where you keep tinkering with the inputs. The question is whether the tolerance matters in these types of “close call” problems.

Problem 7

Expand and then solve the capital budgeting model in Figure 6.1 so that 20 investments are now possible. You can make up the data on cash requirements, NPVs, and the budget, but use the following guidelines:


■ The cash requirements and NPVs for the various investments can vary widely, but the ratio of NPV to cash requirement should be between 2.5 and 3.5 for each investment.


■ The budget should allow somewhere between 5 and 10 of the investments to be selected.

Figure 6.1