Capital budgeting is big topic of financial management. In capital budgeting decision, we not only evaluate different capital budgeting techniques but we also evaluate different alternatives of our projects on the basis of linear programming. Linear programming is technique of financial mathematics. With linear programming, we succeed to choose best quantity of two projects. Actually, linear programming has developed for taking production quantity decisions in which manufacturer selects the optimum quantity of two products under different conditions. But, finance experts have learned the simplex and graphic method of linear programming and tried to use in capital budgeting decisions. They have succeeded in it. Now, it has been included in capital budgeting decisions chapter of CS Accounting Books.
So, today, we will learn linear programming with Simplex Method and Graphic Method with my following videos.
1st Simplex Method of Linear Programming
Suppose, you have two project in which you have to invest your money. You estimate the profit rate of each project. It is $ 6 in first project and $ 7 in second project per unit. You have to select the quantity of investment in our two projects. Suppose, you have to buy 1,00,000 debentures or any other total quantity. First project may be investment in A company's debentures and project B may be B company's debentures. Either you can invest our money in 70,000 debentures in A company and 30000 debentures in B company. But is it the best way to maximize our profit or not? So, choosing best option, we will make simplex table 1, 2, 3 and more. We also do not ignore different condition. Condition may be of your limited capital or limited time or any other condition.
First of all we convert our problem in mathematical equation.
No. of Debentures in A company = X1
No. of Debentures in B company = X2
Maximize = $ 6 X1 + $ 7 X2
Our conditions may be
2 X1 + 3X2 < / = 12
2X1 + X2 < / = 8
We have solved this problem with part 1 to part 10 videos and showed here in playlist form. Watch it and learn linear programming simplex method step by step.
So, today, we will learn linear programming with Simplex Method and Graphic Method with my following videos.
1st Simplex Method of Linear Programming
First of all we convert our problem in mathematical equation.
No. of Debentures in A company = X1
No. of Debentures in B company = X2
Maximize = $ 6 X1 + $ 7 X2
Our conditions may be
2 X1 + 3X2 < / = 12
2X1 + X2 < / = 8
We have solved this problem with part 1 to part 10 videos and showed here in playlist form. Watch it and learn linear programming simplex method step by step.
2nd Graphic Method of Linear Programming
In this method, we just draw the conditions of linear programming problem on the graph paper and then we use the corner points of feasible area for getting best options of quantities of two product or project. I taught graphic method of linear programming and you can learn at this video in you tube.
Related : Sensitive Analysis in Finance
Comments