Capital Budgeting Example:

0: The Harrison Electric Company, located in Chicagos Old Town area, produces two
products popular with home renovators: Old fashioned Chandeliers and ceiling fans.
Both the Chandeliers and fans require a two-step production process involving
wiring and assembly. It takes about 2 hours to wire each chandelier and 3 hours to
wire a ceiling fan. Final assembly of the chandeliers and fans requires 6 and 5
hours, respectively. The production capability is such that only 12 hours of wiring
time and 30 hours of assembly time are available. If each chandeliers produced
nets the firm $7 and each fan $ 6, formulate Harrisons production mix and
maximize profit.

1: Quemo Chemical Company is considering three possible improvement projects

for its plant: a new catalytic converter, a new software program for controlling
operations, and expanding the warehouse used for storage. Capital requirements
and budget limitations in the next two years prevent the firm from undertaking all
of these at this time. The net present value of each of the projects, the capital
requirements, and the available funds for the next two years are given in the below
table.

Maximize net present value of projects undertaken

Subject to : Total Funds used in year 1<= $20000

Total Funds used in year 2<= $ 16000

Project Net Present Value Year1 Year2

Catalytic Converter $25000 $8000 $7000
Software $18000 $6000 $4000
Warehouse $32000 $12000 $8000
Expansion
Available Funds $20000 $16000

2: Fixed Charge Problem Example:

Sitka Manufacturing is planning to build at least one new plant, and three cities are
being considered: Baytown, Texas; Lake Charles, Louisiana; and Mobile, Alabama.
Once the plant or plants have been constructed, the company wishes to have
sufficient capacity to produce at least 38000 units each year. The cost associated
with possible locations are given below in the table :

Site Annual Fixed Cost Variable Cost per Annual Capacity

Unit
Baytown, TX $340,000 $32 21000
Lake Charles, LA $270,000 $33 20000
Mobile, AL $290,000 $30 19000

Objective to minimize Total Cost ( Fixed cost + Variable cost).

3: Financial Investment Example:

The Houston-based investment firm of Simkin, Simkin, and Steinberg specializes in

recommending oil stock portfolios for wealthy clients. One such client has made the
following specifications: (1) at least two Texas oil firms must be in the portfolio, (2)
no more than one investment can be made foreign oil companies, (3) one of the two
California oil stocks must be purchased. The client has up to $ 3000000 ( $ 3
million) available for investments and insists on purchasing large blocks of shares
of each company that he invests in. Table given below describes various stock that
Simkin considers. The objective is to maximize annual return on investment subject
to the constraints.Insists on purchasing large stocks that Simkin considers.

Stock Company Name Expected Annual Cost for Block of

Return($1000s) Shares
1 Trans-Texas Oil 50 480
2 British Petroleum 80 540
3 Dutch Shell 90 680
4 Houston Drilling 120 1000
5 Texas Petroleum 110 700
6 San Diego Oil, 40 510
California
7 California Petro 75 900

Mixed integer Programming:

Bagewell Chemical Company, in Jackson, Missipi, produces two industrial chemical.

The first product, xylene must be produced in 50- pound bags; the second hexall is
sold by pound in dry bulk and hence can be produced in any quantity. Both Xyline
and Hexall are composed of three ingredients- A,B, and C as follows:

Amount per 50- pound Amount per pound of Amount of ingredients

Bag of Xyline ( LB) Hexall (LB) Available
30 0.5 2000 lb of ingredient A
18 0.4 800 lb of ingredient B
2 0.1 200 lb of ingredient C