InvestA company is planning to invest in three available projects. Investing in each project has the realized cash flows
Posted: Wed May 04, 2022 12:11 pm
InvestA company is planning to invest in three available
projects. Investing in each project has the realized cash flows (in
millions of dollars) as listed in the table below Terms(6 months)
Cash Flow Project 1 Cash Flow Project 2 Cash Flow Project 3 Initial
(Term 0) -3 -2 -2.0 1 -1 -0.5 -2.0 2 -1.8 1.5 -1.8 3 0.4 1.5 1 4
1.8 1.5 1 5 1.8 0.2 1 6 5.5 -1 6 For example, Project 1 requires an
initial cash outflow of $3 million, relatively smaller outflows
continue in the first and the second terms, it begins paying a
small return in the third term, and a final payback of $5.5 million
in the sixth term. Today InvestA has $2 million in cash. At the
beginning of each term (0,1,2,3,4,5,6) the company can, if desired,
borrow up to $2 million at 3.5% (per term) interest rate providing
that it will be paid back next term. Leftover cash earns 3% (per
term) interest. For example, if after borrowing and investing at
time 0, InvestA has $1 million, it would receive $30,000 in the
first term as interest. The company’s goal is to maximize cash on
hand after cash flows 3 years from now are accounted for. What
investment and borrowing strategy should it use? Assume that the
company can invest in a fraction of a project. For example, if it
invests in 0.5 of Project 3, it has, for example, cash outflows of
-$1 million at the time 0 and at the first term. However it is not
possible to invest in a project more than 100%. Hint: Cash flow
should be balanced for every term (i.e flow in = flow out).
Solve model using gams
projects. Investing in each project has the realized cash flows (in
millions of dollars) as listed in the table below Terms(6 months)
Cash Flow Project 1 Cash Flow Project 2 Cash Flow Project 3 Initial
(Term 0) -3 -2 -2.0 1 -1 -0.5 -2.0 2 -1.8 1.5 -1.8 3 0.4 1.5 1 4
1.8 1.5 1 5 1.8 0.2 1 6 5.5 -1 6 For example, Project 1 requires an
initial cash outflow of $3 million, relatively smaller outflows
continue in the first and the second terms, it begins paying a
small return in the third term, and a final payback of $5.5 million
in the sixth term. Today InvestA has $2 million in cash. At the
beginning of each term (0,1,2,3,4,5,6) the company can, if desired,
borrow up to $2 million at 3.5% (per term) interest rate providing
that it will be paid back next term. Leftover cash earns 3% (per
term) interest. For example, if after borrowing and investing at
time 0, InvestA has $1 million, it would receive $30,000 in the
first term as interest. The company’s goal is to maximize cash on
hand after cash flows 3 years from now are accounted for. What
investment and borrowing strategy should it use? Assume that the
company can invest in a fraction of a project. For example, if it
invests in 0.5 of Project 3, it has, for example, cash outflows of
-$1 million at the time 0 and at the first term. However it is not
possible to invest in a project more than 100%. Hint: Cash flow
should be balanced for every term (i.e flow in = flow out).
Solve model using gams