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You must optimize the investment portfolio by the shares of investment assets, or optimize the sources of financing, or optimize the capital structure, or any other optimization of the financial performance of the company. For optimization, the simplex method should be used.
For example, you can do this:
The company’s management stated in the report that the company is investing some additional capital investments. There are several sources of capital investment, for example: Internal cash reserves, Debt financing, Equity financing, Government financing.
It is important for businesses to carefully evaluate the costs and benefits of each source of funding and determine which one is most appropriate for their specific needs and financial situation.
For a company, it may be important to maximize income (then the equation should be built on the maximum), or minimization of the cost of capital (then the equation should be built on the minimum).
To find the optimal structure of financial resources for financing investments, according to the task, you should use linear programming.
For example, if you decide to minimize the cost of capital, then the objective function will look like a formula for the cost of capital, since its solution will coincide with WACC. And the variables will be the shares of different sources of funding.
Enter restrictions.
The first constraint can give the amount needed for investment, in millions of dollars. The second constraint may be a constraint on the cost of debt financing to provide a tax shield. You should also take into account that the shares cannot be less than zero.
Next, the equations should be rewritten in a table and the solution should be optimized by the simplex method
At the end, you need to draw a conclusion about which solution will be optimal for your case and why.
The task is needed to be calculated in Excel and the conclusion in Word format !!!
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