Capital Budgeting Suppose You Are An Investor And You Are Considering Investing In Three Projects If You Fully Invest 1 (143.93 KiB) Viewed 31 times
Capital Budgeting Suppose you are an investor, and you are considering investing in three projects. If you fully invest in a project, the realized cash flows, (in millions of dollars) will be as shown in the following Table. For example, project 1 requires cash outflow of $3 million today and returns $5.5 million 3 years from now. Today we have $2 million in cash. At each time point (0, 0.5, 1, 1.5, 2, and 2.5 years from today) we may, if desired, borrow up to $2 million at 3.5% (per 6 months) interest and must be paid back in the next month. Leftover cash earns 3% (per 6 months) interest. For example, if after borrowing and investing at time 0 we have $1 million we would receive $30,000 in interest at time 0.5 years. Your goal is to maximize cash on hand after accounting for time 3 cash flows. Formulate an LP to accomplish this goal. (Řemember that we may invest in a fraction of a project. For example, if we invest in 0.5 of project 3, then we have cash outflows of $1 million at time 0 and 0.5.)