Problem 5. You have to determine an investment strategy for the next three years. At present (time 0) the amount of $100,000 is available for investment. Five investments are available. The cash flows associated with investing $1 in each of them are given in the table below. At most $75,000 can be placed in any single investment. Returns from investments can be reinvested immediately. Cash earns 8% per year. The cash flows are given in the table below. Time 3 $0.50 $0.00 -$1.00 Investment C| -$1.00 | $1.20 $0.00 Investment A -$1.00 $0.00 $1.00 $0.50 $1.00 $0.00 $0.00 $0.00 $1.90 $0.00 -$1.00 $1.50 Investment B -$1.00 $0.00 Investment D Investment E This table should be read as follows: every dollar committed to Investment A causes outflow of $1 at time 0 (now), inflow of $0.50 at time 1, and inflow of $1 at time 2. Each dollar committed to Investment B results in outflow of $1 at time 1, inflow of $0.50 at time 2, and inflow of $1 at time 3, etc. Money obtained from Investment A at time 1 can be used to invest in B. Formulate a linear optimization model for designing an optimal investment strategy. Clearly describe all variables and constraints. Solve the problem in Excel or any other software.

Problem 5. You have to determine an investment strategy for the next three years. At present (time 0) the amount of $100,000 is available for investment. Five investments are available. The cash flows associated with investing $1 in each of them are given in the table below. At most $75,000 can be placed in any single investment. Returns from investments can be reinvested immediately. Cash earns 8% per year. The cash flows are given in the table below. Time 3 $0.50 $0.00 -$1.00 Investment C| -$1.00 | $1.20 $0.00 Investment A -$1.00 $0.00 $1.00 $0.50 $1.00 $0.00 $0.00 $0.00 $1.90 $0.00 -$1.00 $1.50 Investment B -$1.00 $0.00 Investment D Investment E This table should be read as follows: every dollar committed to Investment A causes outflow of $1 at time 0 (now), inflow of $0.50 at time 1, and inflow of $1 at time 2. Each dollar committed to Investment B results in outflow of $1 at time 1, inflow of $0.50 at time 2, and inflow of $1 at time 3, etc. Money obtained from Investment A at time 1 can be used to invest in B. Formulate a linear optimization model for designing an optimal investment strategy. Clearly describe all variables and constraints. Solve the problem in Excel or any other software.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 19E

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