Solve the following problems.

Show the necessary steps clearly

1. A mutual fund company has cash resources of birr 200 million for investment in a diversified
portfolio. Table below shows the opportunity available, their estimated yields, risk factors
and term period of details.

Investment type Annual yield (%) Risk factor Time period(years)

Bank deposit 9.5 0.02 6
Treasury notes 8.5 0.01 4
Corporate deposits 12.0 0.08 3
Blue chip stocks 15.0 0.25 5
Speculative stocks 32.5 0.45 3
Real estates 35.0 0.04 10

Formulate the L.P. model to find the optimal portfolio that will maximize return,
considering the following policy guidelines: (5pts)

i) All funds available may be invested

ii) Weighted average period of at least 5 years should be the planning horizon
iii) Weighted average risk factor must not exceed 0.20
iv) Investment in real estate and speculative stocks together must not be more than 25%
of the money invested

2. A company has 8 grade one and 10 grade two inspectors for quality control inspection. At
least 1,800 pieces musty be inspected in an 8 hour day. Grade one inspector can check 25
pieces an hour with the accuracy of 98%. Grade two inspectors can check 15 pieces an hour
with the accuracy of 95%. The wage rate of grade one inspectors is birr 4 per hour, while
grade two inspector is birr 3per hour. Any error made by an inspector cost birr 2 to the
company.

a) Formulate this problem as LPP (5pts)

b) Solve the LPP (5pts)

3. A company produces three products: A,B and C. Each product requires two raw materials;
steel and aluminum. The following LP model describes the company’s product mix problem

x1, x2, and x3 represent the number of units of product A, B and C respectively
Max Z = 30x1 + 10x2 + 50x3
Subject to
6 x1+ 3 x2 + 5 x3 ≤ 450 (steel)
3 x1 + 4 x2+ 5 x3 ≤ 300 (alumimium), X1, x2, x3 ≥ 0

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 Identify the two production methods that optimize the company’s profit (hint: Use simplex
method) (10pts)
4. Given the LP model
Maximize Z =10 x1 +15x2 +20x3
Subject to
2 x1+4 x2+6 x3≤24
3 x1+9 x2+6 x3≤30
X1, x2, x3≥0
The optimal table is

Cj 10 15 20 0 0
CB B X1 X2 X3 S1 S2 b
20 X3 0 -1 1 ½ -1/3 2
10 X1 1 5 0 -1 1 6
zj 10 30 20 0 10/3 100
zj-cj 0 15 0 0 10/3

a. Find the range of objective function coefficient c2 of variable x2 such that the optimality
is unaffected. (5pts)
b. Find the range of the objective function coefficient c1 of variable x1 such that the
optimality is unchanged. (5pts)

c. Check whether the optimality is affected, if the profit coefficients are changed from (10,
15, and 20) to (8, 27, and 15). If so, find the revised optimal solution. (5pts)

5. Consider the following transportation problem:

Destination
Company A B C Supply
1 5 1 7 10
2 6 4 6 80
3 3 2 5 15
Demand 75 20 50

Since there is not enough supply, some of the demands at these destinations may not be
satisfied. Suppose these are penalty costs for every unsatisfied demand unit which are given by
5, 3, and 2 for destination A, B, and C respectively.
1. Determine how many units and from which source needs to be shipped using the following
methods: (6pts)
A) NWC
B) LCM
C) VAM
2. Find the minimum distribution cost (5pts)

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6. Dire Dawa Administration has decided to carry out road repairs on main four arteries of the
Administration. The government has agreed to make a special grant of birr 50 million
towards the cost with the condition that the repair must be done at the lowest cost and
quickest time. If conditions warrant, then the supplementary token grant will be considered
favorably. The Administration has floated the bid and 5 contractors have submitted their
bids. In order to expedite their work, one road will be awarded to only one contractor.

Cost of repairs in millions

Contractors R1 R2 R3 R4
C1 9 14 19 15
C2 7 17 20 19
C3 9 18 21 18
C4 10 12 18 19
C5 10 15 21 16

Required:
a) Find the best way of assigning the repair work to the contractors and costs(4pts)
b) If it is necessary to seek supplementary grants, then what should be the amount sought?
(3pts)
c) Which of the five contractors will be unsuccessful in this bid (2pts)