Risk _ Return Optimization in Project Selection[4]

In order to run this model, you must have your Excel's "solver add-in" installed to your computer. To install the "solver add-in", 1. From the menu, choose "TOOLS", 2. Choose, "ADD-INS", 3. In the "Add-Ins Available" list, have your "SOLVER ADD-IN" checked. If you have not chosen the full installment option when you had been installing your Microsoft Office, you might need your original Microsoft Office disks during this configuration. METIN KILICInvestment Optimization Present Value of the Present value of Expected Profit Project Revenues (PV's) the Investments (NPV's) Decisions 1 $675,000 $512,500 $162,500 $75,000 1 2 $1,050,000 $780,000 $270,000 $115,000 1 3 $360,000 $250,000 $0 $250,000 0 4 $720,000 $600,000 $0 $120,000 0 5 $1,000,000 $800,000 $0 $100,000 0 6 $90,000 $80,000 $0 $20,000 0 7 $630,000 $525,000 $105,000 $75,000 1 8 $225,000 $150,000 $75,000 $15,000 1 Budget $2,000,000 Invested $1,967,500 Surplus $32,500 Total Profit $612,500 Total Risk $232,707 Return over Risk 2.63 Standard Deviation of CF's Risk & Return Optimization in Project Selection under Budget Constraint The aim is to maximize the profit over risk ratio of the overall project portfolio subject to the budget constraint. After running the model, projects with decision-1 must be undertaken, and projects with decision-0 must be omitted. (See Column-H.) -Do not change the cells with italic characters. There are formulas… -If you have less than 8 project to optimize, simply clear the unnecessary raws in the table. -Do not forget to fill in the correlation matrix... Page 3Investment Optimization 0-1 0-1 0-1 0-1 0-1 0-1 0-1 0-1 Page 4PROJECTS 1 2 1 1 0.7 2 0.7 1 FILL IN THE CORRELATION 3 0.6 0.4 4 0.48 0.23 5 0.38 0.78 6 0.9 0.85 7 0.4 0.5 8 0.05 0.93 4 5 6 0.6 0.48 0.38 0.9 0.4 0.23 0.78 0.85 FILL IN THE CORRELATION MATRIX 1 0.57 0.32 0.54 0.57 1 -0.24 0.65 0.32 -0.24 1 0.5 0.54 0.65 0.5 1 -0.23 0.45 0.64 0.78 0.54 0.46 0.8 -0.057 8 0.4 0.05 0.5 0.9 -0.23 0.54 0.45 0.46 0.64 0.8 0.78 -0.05 1 0.46 0.46 1