1. SE 303 Lab Multi-Period Financial Models Production planning problem

2. Multi-Period Financial Models Determine investment strategy for the next three years Money available for investment at time 0 = $100,000 Investments available : A, B, C, D & E

3. Multi-Period Financial Models No more than $75,000 in one invest Uninvested cash earns 8% interest Cash flow of these investments:

4. Multi-Period Financial Models Decision Variables: A, B, C, D, E : Dollars invested in the investments A, B, C, D, and E S t : Dollars invested in money market fund at time t (t = 0, 1, 2)

5. Multi-Period Financial Models Formulation: Maximize z = B + 1.9D + 1.5E + 1.08S 2 subject to A + C + D + S 0 = 100,000 0.5A + 1.2C + 1.08S 0 = B + S 1 A + 0.5B + 1.08S 1 = E + S 2 A  75,000 B  75,000 C  75,000 D  75,000 E  75,000 A, B, C, D, E, S 0, S 1, S 2  0

6. Production Planning Demand during the next three periods: period 1, 20 units; period 2, 10 units; period 3, 15 units. Unit production cost during each period is as follows: period 1, $13; period 2, $14; period 3, $15.

7. Production Planning A holding cost of $2 per unit is assessed against each period’s inventory. At the beginning of period 1, the company has 5 units on hand. Assume that only one half of the goods produced during a month can be used to meet the current period’s demands

8. Production Planning Decision variables Let x i be the amount of production in month i Let y i be the amount of inventory at the beginning of month i.

9. Production Planning 10