Marine Products Ltd has identified three possible investment projects. Two of these would have to be started very shortly (Year 0), the third in a year’s time (Year 1). None of these projects can be brought forward, delayed or repeated.

The estimated cash flows for the possible projects, none of which will generate cash flows beyond Year 5, are as follows:

All of these projects are typical of projects that the business has undertaken in the past. The business’s cost of capital is 15 per cent p.a.
The entire cash flows of Project A for Years 0 and 1, of Project B for Year 0 and of Project C for Year 1 are capital expenditure. The subsequent net cash inflows are net operating cash surpluses.
The business is not able to raise more than £2 million of investment finance in each of Years 0 and 1. However, to the extent that the business does not invest its full £2 million in Year 0, it will be allowed to use it in Year 1. The business can also use any operating cash surpluses from previously undertaken investments as new investment finance.
In past years the business has used all of its investment finance. It is expected that past investments will produce operating cash surpluses as follows:

Set out the various statements (equations and/or inequalities) that can be subjected to linear programming to provide the management of the business with guidance on the best investment strategy for Years 0 and 1. (The solution to the linear programming problem is not required.) Work to the nearest £100,000. Assume that all cash flows occur on 31 December of the relevant year. Ignore inflation and taxation.

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Year 012345 Project A m (1.6) (0.8) 0.7 1.5 1.5 0.4 Project B m (2.3) 0.6 0.9 0.9 0.5 Project C m (2.5) 0.8 1.5 1.4 0.5