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Integer Programming in Capital Budgeting: A Note on Computational Experience

Published online by Cambridge University Press:  19 October 2009

Richard H. Pettway
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Extract

Solving capital budgeting problems with linear and integer programming has been part of the finance literature for some time [21, 22, 23, 7, 14, and 18]. Capital budgeting problems have unique properties that distinguish them from other integer linear problems discussed in the mathematical programming literature. Capital budgeting problems generally have the following characteristics: (1) the matrix tends to be rectangular with more variables than constraints; (2) they are all maximization problems with ≤ constraints and nonnegativity conditions in the general form 0≤xi≤1 in the case of linear programming and xi = 0, 1 in the case of integer problems; and (3) there are often mutually exclusive projects among the variables. The purposes of this note are to illustrate some computational experience using existing integer algorithms to solve a set of capital budgeting problems and to begin to catalog the performance of integer codes on financial problems.

Type
Communications
Information
Journal of Financial and Quantitative Analysis , Volume 8 , Issue 4 , September 1973 , pp. 665 - 672
Copyright
Copyright © School of Business Administration, University of Washington 1973

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