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Your corporation has just approved an 8-year expansion plan to grow its market share. The plan requires an influx of cash in each of the 8 years. Management wants to develop a financial plan to ensure the cash needed for the expansion will be available at the beginning of each of the 8 years.

Your corporation has just approved an 8-year expansion plan to grow its market share. The plan requires an influx of cash in each of the 8 years. Management wants to develop a financial plan to ensure the cash needed for the expansion will be available at the beginning of each of the 8 years.

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter9: Decision Making Under Uncertainty
Section: Chapter Questions
Problem 30P
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  1. Develop a linear programming model to minimize the total dollars needed to be invested now to meet the expansion cash needs in the next 8 years. Hint: this is the objective function. Use Excel Solver, solving method: Simplex LP.

  2. How many units of each security 1, 2, and 3 should the corporation purchase? What is the investment amount in each security 1, 2, and 3 in year 1?

  3. How much should the corporation place in the savings account in each of the 8 years?

  4. Assuming the corporation currently has $1.8 Million available cash to invest and given the cash needs for the expansion, is the investment plan that you developed feasible? Explain your answer and provide reasoning. 
1. Read the following scenario and then answer the essay questions listed below to complete the exercise. Scenario Your corporation has just approved an 8-year expansion plan to grow its market share. The plan requires an influx of cash in each of the 8 years. Management wants to develop a financial plan to ensure the cash needed for the expansion will be available at the beginning of each of the 8 years. The corporation has the following investment options: Security Price per Return Rate Years to unit (%) Maturity 1 $1,200 10.255 2 $1,000 6.7550 $1,175 12.110 7 Savings Account 5.500 Each unit of security 1, 2, and 3 quarantees to pay $1,000 at maturity.
Transcribed Image Text:1. Read the following scenario and then answer the essay questions listed below to complete the exercise. Scenario Your corporation has just approved an 8-year expansion plan to grow its market share. The plan requires an influx of cash in each of the 8 years. Management wants to develop a financial plan to ensure the cash needed for the expansion will be available at the beginning of each of the 8 years. The corporation has the following investment options: Security Price per Return Rate Years to unit (%) Maturity 1 $1,200 10.255 2 $1,000 6.7550 $1,175 12.110 7 Savings Account 5.500 Each unit of security 1, 2, and 3 quarantees to pay $1,000 at maturity.
Each unit of security 1, 2, and 3 guarantees to pay $1,000 at maturity. Investments in these securities must take place only at the beginning of year 1 and will be held until maturity. Any funds not invested in securities will be invested in a savings account that pays the annual interest rates noted above. The following table summarizes the cash needs for the expansion plan for each of the 8 years: Year 1 = $250,000 Year 5 = $295,000 Year 2 = $300,000 Year 6 = $310,000 Year 3 = $225,000 Year 7 = $280,000 Year 4 = $235,000 Year 8 = $305,000
Transcribed Image Text:Each unit of security 1, 2, and 3 guarantees to pay $1,000 at maturity. Investments in these securities must take place only at the beginning of year 1 and will be held until maturity. Any funds not invested in securities will be invested in a savings account that pays the annual interest rates noted above. The following table summarizes the cash needs for the expansion plan for each of the 8 years: Year 1 = $250,000 Year 5 = $295,000 Year 2 = $300,000 Year 6 = $310,000 Year 3 = $225,000 Year 7 = $280,000 Year 4 = $235,000 Year 8 = $305,000
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