Using Solver to Optimize NPV When Capital is Constrained
In this video I’m going to show you how to use Solver to determine which projects to accept when capital is constrained. So let’s say your company has 20 different projects it could do, and each of these projects has an NPV greater than zero.
Now in theory, a company should accept all positive-NPV projects. But here’s the problem: accepting all 20 projects would require an upfront investment of $3.775 million, and the company only has $2.5 million in cash.
Thus, we need to choose which of these 20 projects to accept. In short, we need to find the combination of projects that results in the highest total NPV, and Solver can help us do this.
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