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Ronald Thump is interested in expanding his firm. After careful consideration, he has determined three areas in which he might invest additional funds: (1) product research and development, (2) manufacturing operations improvements, and (3) advertising and sales promotion. He has $500,000 available for investment in the firm. He can invest in its advertising and sales promotion program every year, and each dollar invested in this manner is expected to yield a return of the amount invested plus 20% yearly. He can invest in manufacturing operations improvements every 2 years, with an expected return of the investment plus 30% (at the end of each 2-year period). An investment in product research and development would be for a 3-year period, with an expected return of the investment plus 50% (at the end of the 3-year period). To diversify the total initial investment, he wishes to include the requirement that at least $30,000 must be invested in the advertising and sales promotion program, at least $40,000 in manufacturing operations improvements, and at least $50,000 in product research and development initially (at the beginning of the first year). Ronald wants to know how much should be invested in each of the three alternatives, during each year of a 4-year period, to maximize the total ending cash value of the initial $500,000 investment. a. Formulate a linear programming model for this problem. Make sure you show the formulation. b. Solve the model by using the computer. Have to put this in excel solver.
Mr. Jones has a 2-stock portfolio with a total value of $560,000. $225,000 is invested in Stock A and the remainder is invested in Stock B. If standard deviation of Stock A is 16.80%, Stock B is 10.75%, and correlation between Stock A and Stock B is ..
Synergy between two companies: Compound rates, not discount rates, are used in an attempt to?
Bill Gates has said that Microsoft is the quintessential firm that operates on "human capital." He once said that if someone developed a better operational system, Microsoft would be out of business in 90 days. If indeed the software industry is driv..
The management of Kimco is evaluating replacing their large mainframe computer with a modern network system that requires much less office space. The network would cost $500,000 (including installation costs) and due to efficiency gains, would genera..
Och, Inc., is considering a project that will result in initial aftertax cash savings of $1.77 million at the end of the first year, and these savings will grow at a rate of 1 percent per year indefinitely.What is the maximum initial cost of company ..
Consider a case of a routine medical checkup for a pregnant woman. Suppose that a new ultrasound method is introduced. A checkup using the new method costs 10% more than a checkup using the old method.
Poston Inc. is considering Projects S and L whose cash flows are shown below. These projects are mutually exclusive (must choose one or the other) equally risky, and not repeatable. If the decision is made by choosing the project with the higher IRR,..
Whispering Pines, Inc. is currently all-equity financed. The expected rate of return on its unlevered shares is 12%. The beta of the market portfolio is 1.0, the risk-free rate of return is 3%, and the market risk premium is 6%. Given this informatio..
The more cash the firm uses to repurchase shares, the less it has available to pay dividends. Free cash flow measures the cash generated by the firm after payments to debt or equity holders are considered. We estimate a firm's current enterprise valu..
Wombat+Wombat is a well-established creative design agency located on the East Coast. It has experienced very stable growth in both earnings and dividends over the past 10 years, averaging 7% per annum. If this growth in dividends is expected to cont..
What is the amount of five equal annual deposits that can provide five annual withdrawals, where a first withdrawal of $1500 is made at the end of year six and subsequent withdrawals increase at $100 over the previous year's, in the interest rate of ..
Suppose that the price of a non-dividend-paying stock is $30, its volatility is 25%, and the risk-free rate for all maturities is 4% per annum. Use DerivaGem European binomial with 60 steps to calculate the cost of setting up the following positions...
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