For each problem listed below:
Note: to get you prepared for the upcoming midterm exam, this assignment is
more challenging than the previous ones. Make sure to allocate plenty of
time to work on it.
Q1. (33 points) Your firm has up to $300,000 to invest in three projects. For each dollar invested now, you expect to receive payments as follows:
|
Payoff/Dollar Invested After |
||||
| 1 Year | 2 Years | 3 Years | 4 Years | |
| Project A | $ 0.25 | $ 0.25 | $ 0.50 | $ 0.50 |
| Project B | $ - | $ 0.75 | $ 0.65 | $ 0.10 |
| Project C | $ 0.10 | $ 0.20 | $ 0.40 | $ 0.80 |
Any cash not occupied with these projects is expected to earn interest at the following rates:
| Year 1 | Year 2 | Year 3 | Year 4 |
| 2.0% | 2.5% | 3.0% | 3.5% |
To reduce risk from default of the firms issuing the investments, you have the constraint that for each of the four years, at most 70% of your
income from the projects can come from any single project. Determine how
to maximize the amount of cash you have on hand at the end of year 4.
(Note: on your spreadsheet, you can set this problem up similarly to the INVEST problem we did in class.
However, to enforce the blending constraints (which are slightly different), you
will need to have a separate cell for the income from each project in each year,
rather than a single SUMPRODUCT formula for each year.)
Q2. (33 points) Problem 15 on pages 51-52 of the
course pack (SunCo Oil).
Q3. (34 points) Problem 71 on page 80 of the course pack (Juiceco Manufacturing). Note that this problem contains the simplification that one gallon of oranges makes one gallon of juice; a slightly more complicated model would would be more realistic. Alternately, we could just read a "gallon" of oranges in the problem text to be a "gallon's worth" of oranges.