You firm is considering in buying several companies, and then making improvements at each of these...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You firm is considering in buying several companies, and then making improvements at each of these companies with the hope of selling at a profit. The companies are in several sectors. The sector of each company, the net present value, and the capital required to purchase each company, is given in the following table: Company Est. net present value A $50 million B $30 million с $20 million D $10 million E $15 million F $60 million G $10 million H $80 million Capital requirements $200 million $150 million $120 million $50 million $75 million $300 million $80 million $400 million 1 You decide to create an optimization problem to decide which companies to invest in. You decide to use the following variables: Sector Tech Tech Tech Retail Retail Manufacturing Manufacturing Manufacturing YA: a binary variable; 1 if you purchase company A • YB: a binary variable; 1 if you purchase company B ● etc... (a) (8 pts.) Write a linear objective function for this problem. Note that the estimated net present value accounts for the capital requirements. For example, if your firm purchases Company A, then you expect to recoup your initial investment of $200 million and make an additional $50 million dollars (in today's dollars). (b) (8 pts.) Your firm has $600 million to invest. Write a constraint that ensures that you do not invest more than this. (c) (7 pts.) There is a conflict of interest between firms D and E, so you cannot buy both of these. Write a constraint that enforces this condition. (d) (7 pts.) In order to have a diverse portfolio, you want to invest in at least one company from each sector. Write linear constraints that enforce this condition. You will need multiple constraints. You firm is considering in buying several companies, and then making improvements at each of these companies with the hope of selling at a profit. The companies are in several sectors. The sector of each company, the net present value, and the capital required to purchase each company, is given in the following table: Company Est. net present value A $50 million B $30 million с $20 million D $10 million E $15 million F $60 million G $10 million H $80 million Capital requirements $200 million $150 million $120 million $50 million $75 million $300 million $80 million $400 million 1 You decide to create an optimization problem to decide which companies to invest in. You decide to use the following variables: Sector Tech Tech Tech Retail Retail Manufacturing Manufacturing Manufacturing YA: a binary variable; 1 if you purchase company A • YB: a binary variable; 1 if you purchase company B ● etc... (a) (8 pts.) Write a linear objective function for this problem. Note that the estimated net present value accounts for the capital requirements. For example, if your firm purchases Company A, then you expect to recoup your initial investment of $200 million and make an additional $50 million dollars (in today's dollars). (b) (8 pts.) Your firm has $600 million to invest. Write a constraint that ensures that you do not invest more than this. (c) (7 pts.) There is a conflict of interest between firms D and E, so you cannot buy both of these. Write a constraint that enforces this condition. (d) (7 pts.) In order to have a diverse portfolio, you want to invest in at least one company from each sector. Write linear constraints that enforce this condition. You will need multiple constraints.
Expert Answer:
Related Book For
Data Analysis and Decision Making
ISBN: 978-0538476126
4th edition
Authors: Christian Albright, Wayne Winston, Christopher Zappe
Posted Date:
Students also viewed these finance questions
-
You firm is considering the purchase of a new office phone system. You can either pay $32,000 now, or $1000 per month for 36 months. a. Suppose your firm currently borrows at a rate of 6% per year...
-
Represent each of these graphs with an adjacency matrix. a) K4 b) K1,4 c) K2,3 d) C4 e) W4 f) Q3
-
How does the basic net present value model of capital budgeting deal with the problem of project risk? What are the shortcomings of this approach?
-
Solve each system using the substitution method. If a system is inconsistent or has dependent equations, say so. -5x + 2y = -2 x + 6y = 26
-
Boboli Co. wanted to promote its California-style pizza, which it sold in supermarkets. The company contracted with Highland Group, Inc., to produce 2 million recipe brochures, which would be...
-
The adjusted trial balance for Renfro Company is given in E3.17. Instructions Prepare the income and owners equity statements for the year and the balance sheet at August 31. E3.17 The trial balances...
-
What is transfer of training? What role does transfer of training play in e-learning?
-
Mandy Peters, the lead accountant of Ross Co., would like to buy a new general ledger software program. She couldnt do it because all funds were frozen for the rest of the fiscal period. Mandy called...
-
Sandhill Audio, Inc. manufactures speakers. During March, selected information is provided below for transactions and accounts: Raw materials acquired for cash $84600 Cost of direct materials used in...
-
We have learned how companies come up with their interim financial reports. Please pick a publicly traded company of your choice, look up its more recent quarterly report on its website, and comment...
-
You work for a high-tech company with approximately 390 employees. Your firm recently won a large DoD contract, which will add 30% to the revenue of your organization. It is a high-priority,...
-
Jack (47) and Dianne (37) have approached you for help with their estate plan. They have two children, Angel (12) and Sara (10). They own a house JTEN, both have retirement accounts titled separately...
-
Automobile Insurance The Patels have automobile liability and bodily injury coverage of $100,000/$300,000/$100,000. They have both comprehensive coverage (other than collision) and collision...
-
Ms . Eli has $ 1 0 , 0 0 0 in pre - tax income that she does not need in the current year, but will require in two years to purchase a condo. She is considering whether she should use this money to...
-
The company has issued 165 million shares over the years. The IPO was in 1993 but the company has issued more shares since then. However, the company has also bought back some of its common stock...
-
Big Box Inc (BBi), a big box store, has approached Sweet about a special order. BBi would like Sweet to manufacture a crib for its in-house brand, Big Box Baby Cribs. The order would be for 10,000...
-
Evaluated using the trapezoidal rule and Simpson's rule. Determine i. the value of the integral directly. ii. the trapezoidal rule estimate for n=4. ill. an upper bound for E- iv. the upper bound for...
-
Solve each equation or inequality. |6x8-4 = 0
-
The current solution to Sure Steps no-backlogging aggregate planning model does quite a lot of firing. Run a one-way SolverTable with the firing cost as the input variable and the numbers fired as...
-
The file P02_35.xlsx contains data from a survey of 500 randomly selected households. a. Suppose you decide to generate a systematic random sample of size 25 from this population of data. How many...
-
Suppose you are trying to explain variations in salaries for technicians in a particular field of work. The file P11_71.xlsx contains annual salaries for 200 technicians. It also shows how many years...
-
In the FRED database, find a variable that is available in both a seasonally adjusted form and a not seasonally adjusted form. Plot both over time and describe how large the seasonal variation in the...
-
How does each of the following variables behave over the business cycle? Develop graphs to show your results and give economic explanations. a. Real imports b. Federal government receipts c. Housing...
-
An economic variable is persistent if declines in the variable tend to be followed by more declines, and increases by more increases. This question asks you to study the persistence of the civilian...
Study smarter with the SolutionInn App