Question

Taco Corp. is a small but growing restaurant chain specializing in Mexican fast food. The management of the company has decided to build a new location in Bozeman, Montana, and wants to establish a construction fund to pay for the new facility. Construction of the restaurant is expected to take seven months and cost $825,000. Taco Corp.’s contract with the construction company requires it to make payments of $250,000 at the beginning of the third month, $275,000 at the beginning of the fifth month, and $300,000 at the beginning of the seventh month. The company currently has $775,000 sitting in a corporate savings account, which is currently earning 0.5% interest per month. As this will be insufficient to cover the construction, the company has decided to use this money to establish the construction fund; beyond the savings account, there are three potential investment opportunities which summarized in the table below. The management of Taco Corp. needs to determine the investment plan that allows them to meet the required schedule of payments. Any additional gains made during the investment & construction period will be deposited back into the savings account. Construct and solve a Linear Optimization model for this problem.

Investment	Available in Month	Months to Maturity	Yield at Maturity
X	1, 2, 3, 4, 5	2	2%
Y	2,4	3	5%
Z	2	5	12%

Answer the following questions:

i. Which investments are being used?

ii. What is the total amount of money earned through investments over this period?

(Could you post the screenshots what it looks like set-up in excel?)

Answer 1

1. Given Payment Structure of $ 825,000

At the begnning of 3rd month = $ 250,000

  At the begnning of 5th month = $ 275,000

  At the begnning of 7th month = $ 300,000

2. On analysis , Investment made Keeping in view of the following cominations

a. Return on Investment

b. Availbility of Investment

c. Payment Schedule

Please find image , and coloured Investment can be identified accordingly given at the top

Answer

i. Investments X,Y & Z

ii. Total Money Earned

= Investment + Closing balance - Opening Balance

= $ 825,000 + 1688 - 775,000

= $ 51, 688