MGTS 113 Linear Programming Case Winter 2023 Richelieu Specialty Paints Richelieu Specialty Paints is a company run by Amanda Richelieu. She is an artist and earned a BA degree with a major in Art and Design. The company was founded by Amanda's father and he recently asked her to take over managing it so that he could retire. Amanda agreed and left her interior design job with an architecture firm to assume the role. She is keen to develop the business further. The company makes a wide variety of paints, mostly targeted at fine artists. However, since Amanda has had experience in interior design she has determined that the company could apply its skills to develop new products for that industry and others. She knows that she hasn't yet developed her quantitative analysis skills to the point they need to be to run a company, so she is seeking assistance with four decisions that she needs to make. She would like to have a report from you providing recommendations for each decision, along with the background calculations that support your decisions. Decision 1: Marketing - Advertising Placement Amanda has a yearly advertising and promotions budget of $45000. Her goal is to maximize the reach (the number of customers that see her company's ads or other marketing efforts). She is considering a mix of placing ads on art websites and in printed art magazines, as well as using targeted social media ad placements and appearances at art tradeshows. She wants to make sure that the company has an online presence, so would like to see at least 110 ads placed on any combination of websites and social media per year. However, she has data that suggests that if she advertises on the websites more than once per week she will be wasting money. There are seven art tradeshows that the company could attend, but Amanda feels it is mandatory to attend at least the three most popular tradeshows. There are three major art magazines, each published monthly, that Amanda would like to advertise in. She could advertise in each of these once per month but would be comfortable reducing the frequency to a minimum of once every three months in each magazine and rotating the placements between the magazines. The reach and cost of each type of ad placement or event are shown below: Print Art Magazine Websites Media Tradeshows Ads Reach {number of people) 14000 12,000 5,000 10,000 Cost (dollars) 250 250 1,000 m a. Recommend the appropriate mix of advertising and promotions for the company. b. Also, comment on what would change if Amanda doubled her advertising and promotions budget. Estimate the increased reach. Decision 2: Financial - Assets Investment Richelieu Specialty Paints has been quite Successful and has $1,250,000 cash to be invested. Amanda and her management team have developed four potential investments in addition to leaving the cash in a low-interest deposit. The four new opportunities are: 1. Purchase some shares ofa major supplier (25% risk of total loss, 13% potential return) Invest in the research and development of a new product (50% risk of total loss, 55% potential return) 3. Buy a selection of corporate bonds (10% risk of total loss, 7% potential return) 4. Buy a selection of government bonds (1% risk of total loss, 4.25% potential return) Leaving the money in a low-interest deposit is virtually riskless and has a 0.5% potential return. Richelieu's father had provided Amanda with some guidelines for investment, aimed at diversification and risk management. These are: 1. Invest a maximum of 30% of the total cash in any one ofthe four new opportunities to ensure some risk control. 2. Invest at least $100,000 in each ofthe four new opportunities to ensure some diversity. Limit the total potential loss, on average, to $300,000, based on the risk factors indicated. 4. Ensure the highest return possible. U.) a. Recommend the appropriate mix of the four investments and note how much money, if any, should be left in the low-interest deposit. b. Also, how would this mix change, and what would happen to the potential return, if Amanda decided to take a more conservative approach and limit the total potential loss to $225,000? c. As part of your recommendations, identify one potential risk factor to Amanada's portfolio return and briefly discuss that risk factor's potential impact. Decision 3: Operations - Materials Blending Richelieu Specialty Paints has begun making paints for the interior design market. The company starts the process by blending four base paint mixes that they buy from major manufacturers. They then add other components to finish off the paint mix to customer specifications. Each of the four base mixes includes pigment, solvent, and two additives. When Richelieu blends the four base mixes they want the final product to be within these specifications (these numbers are a percentage of total volume): I Pigment: 26% s x s 32% I Solvent: 59% S x S 56% I Additive 1: 3% S x S 5% I Additive 2: 5% S x S 7% Decision 3: Operations - Materials Blending Richelieu Specialty Paints has begun making paints for the interior design market. The company starts the process by blending four base paint mixes that they buy from major manufacturers. They then add other components to finish off the paint mix to customer specifications. Each of the four base mixes includes pigment, solvent, and two additives. When Richelieu blends the four base mixes they want the final product to be within these specifications (these numbers are a percentage of total volume): I Pigment: 26% s x s 32% I Solvent: 59% S x S 66% I Additive 1: 3% S x S 5% I Additive 2: 5% S x S 7% The specifications of each of the four base mixes before they are blended are: WWI (instructor's note: you do not need units of volume, use the percentages) a. Recommend what percentage of each base mix should be included in the blend to achieve the specifications listed, keeping input costs as low as possible. Base mix 2 is purchased overseas and thus the price fluctuates due to currency exchange rates. b. Comment on how the percentage of each base included in the blend would change if the cost for base 1 rises by 22% and note what would happen to the total cost in this situation