he ZapCon Company is considering investing in three projects. If it fully invests in a project,...

he ZapCon Company is considering investing in three projects. If it fully invests in a project, the realized cash flows (in millions of dollars) will be as listed in the file P04_99.xlsx. For example, project 1 requires a cash outflow of $3 million today and returns $5.5 million 36 months from now. Today, ZapCon has $3 million in cash. At each time point (0, 6, 12, 18, 24, and 30 months from today), the company can, if desired, borrow up to $5 million at 3.5% (per six months) interest. Leftover cash earns 2% (per six months) interest. For example, if after borrowing and investing at time 0, ZapCon has $1 million, it would receive $20,000 in interest 6 months from now. The company’s goal is to maximize cash on hand after cash flows three 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 now and 6 months from now.

ZapCon cash flows (in $ millions)

	Months from now
Project	0	6	12	18	24	30	36
1	-$3.0	-$1.0	-$1.8	$0.4	$1.8	$1.8	$5.5
2	-$2.0	-$0.5	$1.5	$1.5	$1.5	$0.2	$1.0
3	-$2.0	-$2.0	-$1.8	$1.0	$1.0	$1.0	$5.0

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orchestra answered 2 years ago

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