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
-
Prove the convolution and correlation properties of the z- transform using only its definition.
-
Through the sample of the first 49 Super Bowls, 28 of them were won by teams in the National Football Conference (NFC). Use a 0.05 significance level to test the claim that the probability of an NFC...
-
The projected net cash flows for a project are (in $thousands): Assuming the initial investment is depreciated over the life of the project, the accounting rate of return for the project is a. 25% b....
-
Rowland Company is a small editorial services company owned and operated by Marlene Rowland. On August 31, 2016, the end of the current year, Rowland Company's accounting clerk prepared the following...
-
The figure below shows contours of f(x, y) = 140e - 100y. Find the values of f on the contours. They are equally spaced multiples of 10. Curve A: 4. Curve B: 4. Curve C: 9. Curve D: 2. 9.0 3.6
-
The October 31, 2017, bank statement of Jazzera Distributors has just arrived. To prepare Jazzera Distributors' bank reconciliation, you gather the following data: a. The October 31 bank balance is...
-
Steampunk Corporation has the following predicted indirect costs and cost drivers for 2019 for the given activity cost pools: Fabrication Department Finishing Department Cost Driver Maintenance $...
-
Describe the pressing issue pertaining to Immigration right now in Canada and a citation of four chosen articles regarding the issue.?
-
In your reply posting, evaluate the potential additional needs of the selected child of a peer that are not mentioned in that classmate's posting. 1. African American - Strong Religious/Church...
-
Mod 19.8: Based on the following information from ZYX Co's income statement and other sources for the year ended 12/31/X1, compute ZYX's net cash flows from financing activities: Net Sales for the...
-
What are the key checkpoints in the cell cycle, and what role do tumor suppressor genes play in ensuring proper cell cycle regulation ?
-
03 Cost of Goods Manufactured & Partial Income Statement Aikman Corporation has the following cost records for June 2012: Inventory Work In Process Finished Goods 1-Jun-22 ######## 3,045 S 3,048...
-
The following information relates to last year's operations atthe Legumes Division of Gervani Corporation:Minimum required rate of return12%Return on investment (ROI)15%Sales$ 840,000 2 answers
-
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...
-
What is synergy?
-
Your new insight into investment policy, especially the link between P/E and PBR, and the rate of return on the investment.
-
Show how the share price of a very profitable company which invests at a rate of return that is higher than the required rate of return can still drop.
Study smarter with the SolutionInn App