Linear programming and its role in preparing capital budgets and choosing the optimal combination of investments
Presented to
the Board of the College of Administration & Economics
Karbala University, as partial Fulfillment of
Requirements for the degree of Master of Science in Accounting.
Submitted by the student
Abeer Ali Hussein Al-Nawab
supervised by
Prof. Dr. Mohammed Wafi Abbas Al-Shammari
The primary objective of this research is to prepare a capital budgeting plan using linear programming and to demonstrate its role in selecting the optimal combination of proposed investment projects for “Sama Al-Reef Company for Agricultural and Animal Production Ltd.” as a case study, due to the diversity of its investment projects and the availability of multiple alternatives. The research problem lies in the lack of accuracy in investment decision-making when relying on traditional methods of capital budgeting, which often depend on personal judgment and accumulated experience without employing quantitative and systematic analysis. Linear programming is considered an optimal tool to address this issue, as it is a mathematical approach used for planning and optimal decision-making under limited resources. It is a valuable method to support decision-makers in making sound decisions based on scientific methods.
The researcher adopted a linear programming model aimed at maximizing the Net Present Value (NPV) within a capital budget constraint of 447 billion Iraqi Dinars. The Simplex Method was employed among various linear programming techniques, as it is suitable for achieving the research goal in the context of multiple investment projects. The researcher used quantitative analysis with the WinQSB program to construct and apply the mathematical model to data from ten proposed investment projects.
The study concluded with several findings, the most important of which is the selection of only seven investment projects, while those with high costs and low returns were excluded. This reflects the effectiveness of the approach in supporting decision-making. The research demonstrated that linear programming is an effective tool for rationalizing investment decisions and enhancing resource allocation efficiency by focusing on the most profitable projects.
The study recommends the widespread adoption of linear programming models in capital budgeting processes in both public and private sectors and the training of relevant staff on the use of modern analytical software.
