1. Formulate the linear programming model for the issue algebraically. Group this in three sections: 1) Definition of Decision Variables, 2) Objective Function Equation, 3) Constraints Equations. This should go in the appendix to your memo. (6 marks each issue)
2. Set up and solve this problem using Excel. Include screenshots of this in the appendix to the memo. (6 marks each issue)

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 2: Financial - Assets Investment

Richelieu Specialty Paints has been quite successful and has $1,500,000 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 of a major supplier (30% risk of total loss, 15% potential return)

2. Invest in the research and development of a new product (60% risk of total loss, 50% potential return)

3. Buy a selection of corporate bonds (20% risk of total loss, 8% potential return)

4. Buy a selection of government bonds (2% risk of total loss, 2.5% 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 40% of the total cash in any one of the four new opportunities to ensure some risk control.
2. Invest at least $100,000 in each of the four new opportunities to ensure some diversity.
3. Limit the total potential loss, on average, to $300,000, based on the risk factors indicated.
4. Ensure the highest return possible.

Recommend the appropriate mix of the four investments and note how much money, if any, should be left in the low interest deposit. Also, how would this mix change, and what would happen to potential return, if Amanda decided to take a more conservative approach and limit the total potential loss to $150,000.

Answer rating: 100% (QA)

1 Definition of Decision Variables Lets define the decision variables X1 Amount to invest in shares ... View the full answer