| Inv. 1 | Inv. 2 | Inv. 3 | Inv. 4 | Inv. 5 | |
| Time 0 cash payment | $11 | $53 | $5 | $5 | $29 |
| Time 1 cash payment | $3 | $6 | $5 | $1 | $34 |
| Net Present Value | $13 | $16 | $16 | $14 | $39 |
Star Oil has $40 million available for investment at the present time (time 0); one year from now (time 1) $20 million will be available for investment. Star Oil may purchase any fraction of each investment. In this case, the cash payments and NPV are adjusted accordingly. For example, if Star Oil purchases one fifth of investment 3, then a cash payment of 1/5(5) = $1 million would be required at time 1. The one-fifth share of investment 3 would yield an NPV of 1/5(16) = $3.2 million. Star Oil wants to maximize the NPV that can be obtained by investing in investments 1-5. Formulate an LP that will help achieve this goal. Assume that any funds left over at time 0 cannot be used at time 1.
What if we allow funds to be unspent at time 0 and used at time 1?