Winstonco is considering investing in three projects. If we fully invest in a project, the realized cash flows (in millions of dollars) will be as shown in Table 44. 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, .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. 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 .5 years. Winstonco’s goal is to maximize cash on hand after it accounts for time 3 cash flows. What investment and borrowing strategy should be used? Remember that we may invest in a fraction of a project. For example, if we invest in .5 of project 3, then we have cash outflows of −$1 million at time 0 and .5.
table 44
| Cash Flow | ||
Time (Years) | Project 1 | Project 2 | Project 3 |
0 | −3 | −2 | −2 |
.5 | −1 | −.5 | −2 |
1 | +1.8 | 1.5 | −1.8 |
1.5 | 1.4 | 1.5 | 1 |
2 | 1.8 | 1.5 | 1 |
2.5 | 1.8 | .2 | 1 |
3 | 5.5 | −1 | 6 |
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.