Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Boris Milkem's financial firm owns six assets. The expected sales price (in millions of dollars) for each asset at the beginning of each year is

image text in transcribed Boris Milkem's financial firm owns six assets. The expected sales price (in millions of dollars) for each asset at the beginning of each year is given in the following table. For example, if asset 1 is sold at the beginning of year 2, the firm receives $20 million. Milkem has to make the following payments in the next three years: $20 million in year 1,$30 million in year 2,$35 million in year 3 The firm currently has $5 million cash available and has to sell some or all of its assets over four years to meet the payment requirements. Cash from an asset sold at the beginning of a given year can be immediately used to make payments in that year. During any year, excess funds can be invested in a money market account whose yearly return is 5%. Milkem wants to maximize the total cash on hand at the beginning of year 4 . Assume that all the transactions (payments and receipts) occur at the beginning of a year. (a) (20 points) Set up an IP that Milkem can use to determine which assets to sell and when to maximize total cash on hand at the beginning of year 4. Define your decision variables clearly. (Hint: Obviously, Milkem wants to sell all of the assets by the beginning of year 4 to maximize total cash.) (b) (10 points) Solve the model you developed in part (a) using OpenSolver and report the optimal solution. (Hint: Optimal objective function value is $83,815,250 ) (c) (5 points) Assume that Milkem is not allowed to sell assets 1 and 2 in the same year. How would you modify the formulation in part (a) to handle this? You do not need to submit the optimal solution here but you may want to test your model to see if your constraint(s) really works. (d) (5 points) Assume that asset 3 can only be sold if asset 6 was sold in a prior year. How would you modify the formulation in part (a) to handle this? You do not need to submit

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Multifractal Financial Markets An Alternative Approach To Asset And Risk Management

Authors: Yasmine Hayek Kobeissi

1st Edition

1461444896, 978-1461444893

More Books

Students also viewed these Finance questions

Question

What is ethnocentric bias?

Answered: 1 week ago