A Glass co.

, produces high quality glass

products including windows and glass
doors. It has 3 plants. Aluminum frames
and hardware are made in plant 1, wood
frames are made in plant 2, and plant 3
produces the glass and assembles the
products. The co. has decided to launch 2
products
Product 1: An 8 foot glass door with
aluminum framing
Product 2 : A 4x6 foot double-hung wood-
framed window
Data for Wyndor Glass Co. Problem



Plant
Production time per
batch , Hours
Production
Time
available per
week , hours
Product
Doors Windows
1 2
1 1 0 4
2 0 2 12
3 3 2 18
Profit/batch
300 500
Reconsider the Wyndor glass co. Suppose the
estimates of the unit profit for the two new
products have been revised to $600 for the
doors and $300 for the windows. Find the
production plan for the co.
Suppose the VP of the co. now has found a way
to provide a little additional production time (1 hr,
2 hr, 3 hr) in plant 2 to the new products.
Use these results to determine how much each
additional hour per week would be worth in
terms of increasing the total profit from the two
new products.
x1
x2
X1=4
2X2=12
3x1+2x2=18
Z=3x1+5x2
Optimal value
Advertising Mix problem
The Profit and Gambit Co. produces cleaning products for
home use. This is a highly competitive market, and the co.
continually struggles to increase its small market share.
Management has decided to undertake a new advertising
campaign that will focus on the following 3 products
A stray pre-wash stain remover
A liquid laundry detergent
A powder laundry detergent
The campaign will use both TV and print media. A commercial
has been developed to run on national television that will
feature the liquid detergent. The advertisement for the print
media will promote all three products and will include cent-off
coupons that consumers can use to purchase the products at
reduced prices. The general goal is to increase the sales of
each of these products over the next year by a significant
percentage over the past year. Specifically, the management
has sent the following goals for the campaign
Sales of the stain remover should increase by at
least 3%
Sales of the liquid detergent should increase by at
least 18%
Sales of the powder detergent should increase by at
least 4%
The table shows the estimated increase in
sales for each unit of advertising in the
respective outlets
Managements objective is to determine how
much to advertise in each medium to meet the
sales goals at a minimum total cost

Increase in sales per unit of
advertising
Product Television Print Media Minimum
required
increase
Stain
Remover
0% 1% 3%
Liquid
detergent
3 2 18
Powder
detergent
-1 4 4
Unit Cost 1m 2m
Internet Banking
Different age groups require different services . The
first group encompasses the customers who are 18-
25 years old. The bank assumes that this group has
minimal transactions and limited income. The 2
nd

group is 26-40yrs age group. This group has
significant income , more transactions , requires
numerous loans for cars and new houses and invests
in various securities. The 3
rd
group of 41-50yrs. Bank
assumes that these people will use less web banking.
4
th
group consists of 51 and above age. These people
require continuous information on retirement funds. It
is very unlikely that these people use web for banking
services. The Bank wants to interview 2000 customers
with at least 20% from the 1
st
age group , 27.5%
from the 2
nd
age group, 15% in 3
rd
age group and 4
th

age group
Internet is a recent phenomenon and the
customer might not have heard WWW. The
Bank, therefore wants to ensure that the
survey includes a mix of customers who
know the Internet well and those who have
less exposure to Internet. The Bank wants
at least 15% of the customers from the
silicon valley where internet use is high,
35%-big cities-Internet use medium, 20%-
small town-Internet use low
Age Group
Region 18-25 26-40 41-50 51+
Silicon
Valley
4.75 6.50 6-50 5.00
Big
cities
5.25 5.75 6.25 6.25
Small
Towns
6.50 7.50 7.50 7.25
Capital Budgeting (Think-Big
Development Co.)
A co. is a major investor in commercial real estate
development projects. It currently has the opportunity
to share the 3 large construction projects.
Construct a high rise office building
Construct a hotel
Construct a shopping centre
Each project requires each partner to make
investments a four different points in time: a down
payment now, an additional capital after one, two and
three years as shown in the table. A partner taking a
certain percentage of share is obliged to invest that
percent of each of the amounts shown in the table for
the project.

Investment Capital Requirement
Year Office
Building
Hotel Shopping
Centre
0 40 m 80 m 90m
1 60 m 80 m 50m
2 90 m 80m 20m
3 10 m 70m 60m
NPV 45m 70m 50m
All the 3 projects are expected to be very profitable in
the long run. So the management of the co. wants to
invest as much as possible in some or all of them. The
objective is to determine the investment mix that will
be most profitable, based on the current estimates of
the profitability.
Since it will be several years before each project
begins to generate income, which will continue for
many years thereafter, we need to take into account
the time value of money in evaluating how profitable
it might be. This is done by discounting future cash
outflows (capital invested) and cash inflows (income),
and than adding discounted net cash flows to
calculate a projects NPV.
The co. currently has $25m available
for capital investment. Projections are
that another $20m will become
available after one year, $20m more
after two years, and another $15m
after three years. What share should
the co. take in the respective projects
to maximize the total NPV of these
investments ?
Personal Scheduling in Union
Airways
Union Airways is adding more flights to and from its
hub Airport and so needs to hire additional customer
service agents. However, it is not clear, just now how
many more should be hired. Management recognizes
the need for the cost control while also consistently
providing a satisfactory level of service to the co.
customers, so a desirable trade-off between these two
factors is being sought. The objective is to provide
satisfactory service with the smallest personnel cost.
The provision is that each agent works at an 8 hr
shift. Minimum number of agents needed in each shift
are given in the table. The shifts are
Shift timings and its cost
6AM 2 PM 170
8AM- 4 PM 160
12(noon) 8PM 175
4PM mid night 180
10 PM- 6 AM 195
Time period covered by shift
Time Period Min number of agents
needed
6 AM 8 AM 48
8 AM 10 AM 79
10 AM 12 ( noon) 65
12(noon) 2 PM 87
2 PM 4 PM 64
4 PM 6PM 73
6 PM 8 PM 83
8 PM 10 PM 43
10 PM 12 ( mid night) 52
Mid night- 6 A.M 15
Investment Example
An individual investor has $70,000 to divide
among several investments. The alternative
investments are municipal bonds with an 8.5%
of annual return, certificates of deposit with a
5% return, treasury bills with a 6.5% return
and growth stock fund with a13% return. The
investments are all evaluated after 1 year.
However, each investment alternative has
different perceived risk to the investor; thus it
is advisable to diversify. The investor wants to
maximize his/her return. The investor wants to
invest entire $70,000.
Investment Guidelines
No more than 20% the total investment in
municipal bonds
The amount invested in certificates of
deposit should not exceed the amount
invested in the other 3 alternatives.
At least 30% of investment should be in
treasury bills and certificates of deposit.
To be safe , more should be invested on
CDs and treasury bills than in municipal
bonds and the growth stock fund by a ratio
of at least 1.2 to 1.

An Investment problem
An investor has Rs 100 with him on
Monday. He has the following
investment option available each day.
If he invests 2 units of money on one
day , and 1 unit the next day , than
on the following day he can get a
return of 4 units. The investor wants
to determine the optimal investment
policy that will maximize the money
he has on the Saturday of the same
week.
.
OPTIONS

Follow-up yesterdays investment
with an additional 50%

Initiate a fresh investment on that
day

Save or hold cash for future
investments
Oil Blending Problem
An Oil co. has 5000 barrels of crude oil-1 and 10000
barrels of crude oil-2.The co. sells gasoline and
heating oil. These products are produced by blending
together the two crude oils. Each barrel of crude oil 1
has the quality level 10 and that of oil-2 has 5.
Gasoline must have an average quality level of 8 and
the requirement for heating oil is 6.Gasoline sells for
$25/barrel and heating oil sells for $20/barrel. The
advertising cost to sale one barrel of gasoline is 0.20
and advertising cost to sell one barrel of heating oil is
0.10. We assume that the demand for heating oil and
the gasoline is unlimited. The co. wants to maximize
the profit.
Automobile alliance a large automobile co. organizes the vehicles it
manufactures into 3 families : trucks , small cars and a family of
midsized and luxury cars. The plant assembles 2 models from the
family of mid sized and luxury cars : Thrill seeker (4 door sedan ,
vinyl seats, plastic interior, standard features, and excellent
mileage). It is marketed as a smart buy for middle class families
with tight budgets. It generates a modest profit of $3600 for the
co. The second model : Classy Cruiser (2-door luxury sedan ,
leather seats , wood interior, custom features , navigational
facilities ). It is marketed for upper-middle class families and
generates a healthy profit of $5400 to the Co.
The manager of the plant currently deciding the production
schedule for the next month. The manager knows that it takes 6
labor hours for family each thrill seeker and 10.5 labor hour for
each classic cruiser. The plant possesses 48000 labor hrs. during
the month
Because the plant is simply an assembly plant , the
parts required for the vehicles are not produced at the
plant. For example tires , steering wheels, windows,
seats and doors all arrive from the supplier. Next
month the manager knows that she will be able to
obtain only 20000 doors ( 10000L , 10000R) from the
door supplier. Both Thrill seeker and Classy Cruiser
use same door.
In addition , a recent co. forecast of monthly demands
for different automobile models suggest that the
demand for the classy cruiser is limited to 3500 cars.
There is no limit on the demand for family thrill
seekers with in the capacity limits of the assembly
plant. The co. wants the manufacturing plan so as to
maximize the profit.
Capital Budgeting Model
A co. is considering 7 investments. The
cash required for each investment and the
NPV each investment adds to the firm are
given in the table. The cash available for
each investment is 15000. The co. wants to
find the investment policy that maximizes
its NPV. The crucial assumption here is that
the co. wishes to take part in any of these
investments , it must go all the way. It
cannot go half way like 25000 investment
in option 1.
Investments Cash Required NPV Added
1 5000 16000
2 2500 8000
3 3500 10000
4 6000 20000
5 7000 22000
6 4500 12000
7 3000 8000
Credit Card Example
A Bank receives credit card payments from 4 regions
of the country. The average daily amounts of
payments mailed from each region are as follows :
West Rs 70,000 , North Rs 50,000 , East Rs 60000,
and South Rs 40000. Citibank must decide where
their customers mail their payments. An annual
interest of 20% can be earned on cash received. The
Bank is considering of setting of payment centers in 4
cities (Mumbai , Delhi , Kolkata and Chennai). The
average number of days that elapse between the time
a check is mailed and it is credited to the account is
given in the table. The annual cost of running a
lockbox is Rs 50,000. Each region must send all its
money to a single city. Citibank wants to determine
the lockbox configuration that minimizes the sum of
loss interest and lockbox costs
Time for bank Lockbox Example
Mumbai Delhi Kolkata Chennai
West 2 6 8 8
North 6 2 5 5
East 8 5 2 5
South 8 5 5 2