Project 2: Financial Planning Problem Background The Anxin Golden Limited operates upscale retirement communities in metropolitan of mainland china. The past few years have been difficult ones for AnXin. The demand for retirement community housing has been light and Anxin has been unable to maintain full occupancy. However, this market's future is looking brighter, which is reflected in the company's imminent cash flow problem as shown in Table 2.1. Currently, with only $200 million in cash reserves, it appears that AnXin will need to take out some loans to provide with all the construction costs. Cash flow Construction Cost Year 1 -800 1000 Year 2 -200 200 Year 3 -200 250 Year 4 400 150 Year 5 600 50 Year 6 300 50 Year 7 500 500 Year 8 700 500 Year 9 1000 1500 Year 10 800 Table 2.1. Cash flow and Construction Cost (all cash figures in Millions) Bank has offered two types of loans to AnXin. (1) The first is to borrow a nine-year loan, whose annual interest rate is 7 percent. The company decides to borrow this long-term loan at the beginning of year 1. The interest will be made annually from year 2 to year 10 and then the entire principal repaid in a single balloon payment at year 10. (2) The second option is to borrow a series of one-year loans, whose annual interest rate is 10 percent. These loans can be taken out each year as needed, but each must be repaid (with interest) the following year. The company decides to borrow the loan at the beginning of year 1, year 2, year 3, year 4, and year 5 only. Asides from loans, the corporate treasurer also decides to set aside certain amount when cash flow getting better, and invest into government bonds limited to three choices shown in Table 2.2. For example, considering it takes three years for ibond to mature, AnXin will buy at the beginning of year 6 only. Acting as the consultant of AnXin Limited, your team is going to define the constraints in the business scenario by formulating a LP problem and develop a decision support system (DSS) to help decision making of choices of loans / investments while maximizing the ending balance in year 10. Bonds Rate (%) Years to Maturity Buy ibond 3.00 3 Beginning of Year 6 xbond 5.00 5 Beginning of Year 5 EBond 7.00 5 Beginning of Year 4 Table 2.2. Bond Choices