Joe Jones wants to establish a construction fund (or sinking fund) to pay for a new bowling alley he is having built. Construction of the bowling alley is expected to take six months and cost $300,000. Joe’s contract with the construction company requires him to make payments of $50,000 at the end of the second and fourth months, and a final payment of $200,000 at the end of the sixth month when the bowling alley is completed. Joe has identified four investments that he can use to establish the construction fund; these investments are summarized in the following table:

The table indicates that investment A will be available at the beginning of each of the next six months, and funds invested in this manner mature in one month with a yield of 1.2%. Similarly, funds can be placed in investment C only at the beginning of months 1 and/or 4, and mature at the end of three months with a yield of 5.8%. Joe wants to minimize the amount of money he must invest in month 1 to meet the required payments for this project.
a. Draw a network flow model for this problem.
b. Create a spreadsheet model for this problem and solve it.
c. What is the optimalsolution?

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Available in Month 1,2, 3, 4, 5, 6 1, 3, 5 1, 4 Yield at Maturity 1.2% 3.5% 5.8% 11.0% Months to Maturity Investment 6