Practical Management Science
6th Edition
ISBN: 9781337406659
Author: WINSTON, Wayne L.
Publisher: Cengage,
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 6, Problem 39P
Summary Introduction
To determine: The investment that maximizes NPV.
Introduction: The variation between the present value of the
Expert Solution & Answer
Explanation of Solution
Model:
The values in the above table are in millions.
Formulae to determine the model:
Solver parameter:
Project 4 and Project 3 are the investment plants that would maximize the NPV.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Please do not give solution in image format thanku
Let xi = 1 if Project i is selected, i = 1,2,3,4,5; and 0 otherwise:
Which answer below indicates that if Project 2 is selected, then Project 4 must be selected?
Group of answer choices
None of the above
x2 + x4 = 1
x2 + x4 ≤ 1
x4 ≤ x2
x2 ≤ x4
A bond has a face value of $1,000, an annual coupon rate of 3.70%, an yield to maturity of 7.4%, makes 2 (semi-annual) coupon payments per year, and 6 periods to maturity (or 3 years to maturity). Determine the duration of this bond. Notice that there is a function “Duration” in Excel, but you probably would like to check your answer with an analytical solution based on the specific duration formula.
Note: This is an excel based assignment so please work it out on excel highlighting the formulas. thank you
Use excel for this problem
A trust officer at the Blacksburg National Bank needs to determine how to invest $150,000 in the following collection of bonds to maximize the annual return.
Bond
Annual Return
Maturity
Risk
Tax
Free
A
9.5%
Long
High
Yes
B
8.0%
Short
Low
Yes
C
9.0%
Long
Low
No
D
9.0%
Long
High
Yes
E
9.0%
Short
High
No
The officer wants to invest at least 40% of the money in short-term issues and no more than 20% in high-risk issues. At least 25% of the funds should go in tax-free investments, and at least 45% of the total annual return should be tax free.
Formulate the LP model for this problem.
Create the spreadsheet model and use Solver to solve the problem.
Chapter 6 Solutions
Practical Management Science
Ch. 6.3 - Prob. 1PCh. 6.3 - Prob. 2PCh. 6.3 - Solve Problem 1 with the extra assumption that the...Ch. 6.3 - Prob. 4PCh. 6.3 - Prob. 5PCh. 6.3 - Prob. 6PCh. 6.3 - Prob. 7PCh. 6.3 - Prob. 8PCh. 6.3 - Prob. 9PCh. 6.3 - Prob. 10P
Ch. 6.4 - Prob. 11PCh. 6.4 - Prob. 12PCh. 6.4 - Prob. 13PCh. 6.4 - Prob. 14PCh. 6.4 - Prob. 15PCh. 6.4 - Prob. 16PCh. 6.4 - Prob. 17PCh. 6.4 - Prob. 18PCh. 6.4 - Prob. 19PCh. 6.4 - Prob. 20PCh. 6.4 - Prob. 21PCh. 6.4 - Prob. 22PCh. 6.4 - Prob. 23PCh. 6.5 - Prob. 24PCh. 6.5 - Prob. 25PCh. 6.5 - Prob. 26PCh. 6.5 - Prob. 28PCh. 6.5 - Prob. 29PCh. 6.5 - Prob. 30PCh. 6.5 - In the optimal solution to the Green Grass...Ch. 6.5 - Prob. 32PCh. 6.5 - Prob. 33PCh. 6.5 - Prob. 34PCh. 6.5 - Prob. 35PCh. 6.6 - Prob. 36PCh. 6.6 - Prob. 37PCh. 6.6 - Prob. 38PCh. 6 - Prob. 39PCh. 6 - Prob. 40PCh. 6 - Prob. 41PCh. 6 - Prob. 42PCh. 6 - Prob. 43PCh. 6 - Prob. 44PCh. 6 - Prob. 45PCh. 6 - Prob. 46PCh. 6 - Prob. 47PCh. 6 - Prob. 48PCh. 6 - Prob. 49PCh. 6 - Prob. 50PCh. 6 - Prob. 51PCh. 6 - Prob. 52PCh. 6 - Prob. 53PCh. 6 - Prob. 54PCh. 6 - Prob. 55PCh. 6 - Prob. 56PCh. 6 - Prob. 57PCh. 6 - Prob. 58PCh. 6 - Prob. 59PCh. 6 - Prob. 60PCh. 6 - Prob. 61PCh. 6 - Prob. 62PCh. 6 - Prob. 63PCh. 6 - Prob. 64PCh. 6 - Prob. 65PCh. 6 - Prob. 66PCh. 6 - Prob. 67PCh. 6 - Prob. 68PCh. 6 - Prob. 69PCh. 6 - Prob. 70PCh. 6 - Prob. 71PCh. 6 - Prob. 72PCh. 6 - Prob. 73PCh. 6 - Prob. 74PCh. 6 - Prob. 75PCh. 6 - Prob. 76PCh. 6 - Prob. 77PCh. 6 - Prob. 78PCh. 6 - Prob. 79PCh. 6 - Prob. 80PCh. 6 - Prob. 81PCh. 6 - Prob. 82PCh. 6 - Prob. 83PCh. 6 - Prob. 84PCh. 6 - Prob. 85PCh. 6 - Prob. 86PCh. 6 - Prob. 87PCh. 6 - Prob. 88PCh. 6 - Prob. 89PCh. 6 - Prob. 90PCh. 6 - Prob. 91PCh. 6 - Prob. 92PCh. 6 - This problem is based on Motorolas online method...Ch. 6 - Prob. 94PCh. 6 - Prob. 95PCh. 6 - Prob. 96PCh. 6 - Prob. 97PCh. 6 - Prob. 98PCh. 6 - Prob. 99PCh. 6 - Prob. 100PCh. 6 - Prob. 1CCh. 6 - Prob. 2CCh. 6 - Prob. 3.1CCh. 6 - Prob. 3.2CCh. 6 - Prob. 3.3CCh. 6 - Prob. 3.4CCh. 6 - Prob. 3.5CCh. 6 - Prob. 3.6C
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, operations-management and related others by exploring similar questions and additional content below.Similar questions
- Suppose you begin year 1 with 5000. At the beginning of each year, you put half of your money under a mattress and invest the other half in Whitewater stock. During each year, there is a 40% chance that the Whitewater stock will double, and there is a 60% chance that you will lose half of your investment. To illustrate, if the stock doubles during the first year, you will have 3750 under the mattress and 3750 invested in Whitewater during year 2. You want to estimate your annual return over a 30-year period. If you end with F dollars, your annual return is (F/5000)1/30 1. For example, if you end with 100,000, your annual return is 201/30 1 = 0.105, or 10.5%. Run 1000 replications of an appropriate simulation. Based on the results, you can be 95% certain that your annual return will be between which two values?arrow_forwardA trust officer at the Blacksburg National Bank needs to determine how to invest $150,000 in the following collection of bonds to maximize the annual return. Bond Annual Return Maturity Risk Tax Free A 9.5% Long High Yes B 8.0% Short Low Yes C 9.0% Long Low No D 9.0% Long High Yes E 9.0% Short High No The officer wants to invest at least 40% of the money in short-term issues and no more than 20% in high-risk issues. At least 25% of the funds should go in tax-free investments, and at least 45% of the total annual return should be tax free. Formulate the LP model for this problem. Create the spreadsheet model and use Solver to solve the problem. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forwardIn the PMT function, what is not true about the Num_periods argument? Group of answer choices It reflects a count of how many times payments will be made. It can contain references to fields. You must use constants for this argument. It is required.arrow_forward
- Managing a Portfolio. A local bank wants to build a bond portfolio from a set of five bonds with $1 million available for investment. The expected annual return, the worst-case annual return on each bond, and the “duration” of each bond are given in the following table. (The duration of a bond is a measure of the bond’s sensitivity to changes in interest rates.)Expected Return Worst Case Return DurationBond 1 12.5% 8.0% 8Bond 2 11.5% 7.5% 7Bond 3 10.5% 6.8% 6Bond 4 9.5% 7.0% 5Bond 5 8.5% 7.4% 3The bank wants to maximize the expected return from its bond investments, subject to three conditions: The average worst-case return for the portfolio must be at least 7.2 percent.The average duration of the portfolio must be at most 6.Because of diversification requirements, at most 40 percent of the total amount invested can be invested in a single bond.What is the maximum return on the $1 million investment? How should the investment be…arrow_forwardA trust officer at the Blacksburg National Bank needs to determine how to invest $100,000 in the following collection of bonds to maximize the total annual return (before tax). Bond Annual Return Maturity Risk Tax-Free A 9.5% Long High Yes B 8.0% Short Low Yes C 9.0% Long Low No D 9.0% Long High Yes E 9.0% Short High No The officer wants to invest as least 50% of the money in short-term issues and no more than 50% in high-risk issues. At least 30% of the funds should go in tax-free investments, and at least 40% of the total annual return should be tax free. Suppose the decision variable represents the amount of money invested in bond for . Formulate a linear programming (LP) model to solve the optimal strategy. 1. Write down the constraint using the defined decision variables requiring “invest as least 50% of the money in short-term issues”. 2. Write down the constraint using the defined decision…arrow_forwardForrester and Cohen is a small accounting firm managed by Joseph Cohen since the retirement in December of his partner, Brenda Forrester. Cohen and his 3 CPAS together bill 620 hours per month. When Cohen or another accountant bills more than 155 hours per month, he or she gets an additional "overtime" pay of $63.20 for each of the extra hours. This is above and beyond the $4,900 salary each draws during the month. (Cohen draws the same base pay as his employees.) Cohen strongly discourages any CPA from working (billing) more than 250 hours in any given month. The demand for billable hours for the firm over the next 6 months is estimated below. attempted Cohen has an agreement with Forrester, his former partner, to help out during the busy tax season, up to 250 hours in any given month if needed, for an hourly fee of $135. Cohen will not even consider laying off one of his colleagues in the case of a slow economy. He could, however, hire another CPA at the same salary as business…arrow_forward
- CWD Electronics sells Televisions (TV), which it orders from the USA. Because of shipping and handling costs, each order must be for 5TVs. Because of the time it takes to receive an order, the company places an order every time the present stock drops to 5 TVs. It costs $50 to place anorder. It costs the company $500 in lost sales when a customer asks for a TV and the warehouse is out of stock. It costs $100 to keep each TV stored in the warehouse. If a customer cannot purchase a TV when it is requested, the customer will not wait until one comes in but will go to a competitor.The following probability distribution for demand for TV has been and the time required to receive an order once it is placed (lead time) has the following probability distribution: (Attached) The company has 3 TVs in stock. Orders are always received at the beginning of the week.Note that a lead time of 2 weeks imply that an order placed in week one will arrive in week 4. The time required to receive an order…arrow_forwardThe Free Cash Flow model has the following advantage over the Dividend Growth model: In the case of variable growth, it does not require the calculation of any horizon value. It can be applied even if growth rates are unknown. It can be applied to companies with variable growth in the initial years that eventually settle down to a fixed rate of growth for the long term. It can be applied to divisions of companies. O It does not require any forecasting.arrow_forwardForrester and Cohen is a small accounting firm managed by Joseph Cohen since the retirement in December of his partner, Brenda Forrester. Cohen and his 3 CPAs together bill 640 hours per month. When Cohen or another accountant bills more than 160 hours per month, he or she gets an additional "overtime" pay of $62.50 for each of the extra hours. This is above and beyond the $5,000 salary each draws during the month. (Cohen draws the same base pay as his employees.) Cohen strongly discourages any CPA from working (billing) more than 250 hours in any given month. The demand for billable hours for the firm over the next 6 months is estimated below. Month Jan. Feb. Mar Apr. Estimate of Billable Hours 600 490 1,010 1,220 660 570 O May June Cohen has an agreement with Forrester, his former partner, to help out during the busy tax season, up to 250 hours in any given month if needed, for an hourly fee of $120. Cohen will not even consider laying off one of his colleagues in the case of a slow…arrow_forward
- This section contains questions regarding the 2nd part of the Unit 1 with the following topics: 1. Financial Planning2. Savings and budgeting3. Investing 1.Mutual Fund is when an investor directly acquires a claim on a security or property True False 2. The "Rule of 75" is used to determine the number of yearss needed to double the value of your money * True Falsearrow_forwardStock in Company A sells for $89 a share and has a 3-year average annual return of $24 a share. The beta value is 1.26. Stock in Company B sells for $83 a share and has a 3-year average annual return of $18 a share. The beta value is 1.13. Derek wants to spend no more than $19,000 investing in these two stocks, but he wants to earn at least $2100 in annual revenue. Derek also wants to minimize the risk. Determine the number of shares of each stock that Derek should buy. Set up the linear programming problem. Let a represent the number of shares of stock in Company A, b represent the number of shares of stock in Company B, and z represent the total beta value. Minimize z3 1.26а + 1.13b subject to 89а + 83b s 19000 24a + 18b > 2100 a 2 0, b20. (Use integers or decimals for any numbers in the expressions. Do not include the $ symbol in your answers.) Derek should buy 88 share(s) of stock in Company A and 0 share(s) of stock in Company B. (Round to the nearest integer as needed.)arrow_forwardCreate a spreadsheet to calculate your projected total costs, total revenues, and total profits for giving a seminar on cost estimating. Make the following assumptions: You will charge $600 per person for a two-day class. You estimate that 30 people will attend the class, but you want to change this input. Your fixed costs include $500 total to rent a room for both days, setup fees of $400 for registration, and $300 for designing a postcard for advertising. Youwill not include your labor costs for this estimate, but you estimate that you will spend at least 150 hours developing materials, managing the project, and giving the actual class. You would like to know what your time is worth given different scenarios. Youwill order 5,000 postcards, mail 4,000, and distribute the rest to friends and colleagues. Yourvariable costs include the following: $5perperson for registration plus 4 percent of the class fee per person to handle credit card processing; assume that everyone pays…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Practical Management ScienceOperations ManagementISBN:9781337406659Author:WINSTON, Wayne L.Publisher:Cengage,
Practical Management Science
Operations Management
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:Cengage,