Multiple period
In this lesson, you'll learn how to formulate multi-period capital rationing problems using linear programming—a key technique when capital is limited across several years.
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In this lesson
- 0:00 Multi-period capital rationing introduction
- 1:06 Formulating the linear programming problem
- 1:50 Step one: Define project proportions
- 2:27 Step two: Formulate the objective function
- 3:00 Step three: Express capital constraints
- 4:35 Worked example: Shrink Co investment schedule
- 6:37 Identifying non-binding constraints
About this lesson
Unlike single-period rationing (which uses the profitability index), multi-period problems require a structured three-step approach: defining the proportion of each project to undertake, formulating an objective function to maximise net present value, and expressing capital constraints as inequalities for each time period. You won't need to solve the linear programming calculations in the exam, just set up the problem correctly—typically worth around five marks. This is essential for FM (Financial Management) and AFM (Advanced Financial Management) papers, where you'll encounter realistic investment scenarios with divisible projects and multiple capital limits.
Duration: 7m
Transcript
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