CASE LET-I Ken Group of Industries Ken Group is faced with the problem of deciding the size of the

proposed plant for the manufacture of handlooms. It has two options available at present: Build a large plant to accommodate any possible demand in future. Build a small plant to accommodate a low demand and consider the possibility of expanding when the demand increases. The management has got the market research conducted which has categorized the demand as low, medium or high with corresponding probabilities of 0.4, 0.3 and 0.3 respectively. The following data has been collected: i. if a large plant is built at a cost of rs. 10 lakhs, it will accommodate any possible demand in future and there will be no need for expansion. The discounted operating returns for low, medium and high demand are estimated at rs 8 lakhs , rs. 18 lakhs and 22 lakhs respectively. ii. If a small plant is built initially at a cost of rs 4 lakhs, it will meet only low demand and will require to be expanded when demand becomes medium or high. iii. Depending upon the demand in future , small plant may require no expansion (i.e if the demand is minimum) or may require large plant expansion at a cost of rs. 8 lakhs (i.e if the demand is high) iv. Since the expansion of the plant will not be possible suddenly , some revenue is likely to be lost. The operating returns to be realized in case of small plant expansion and large plant expansion are projected at rs 16 lakhs and rs. 19 lakhs respectively. Questions: a. Represent all decision and their economic consequences into a decision tree. b. Decide on the size of the plant and optima; plan of action.

CASE LET-II Investment problem: A person is interested in investing rs 500000 in a mix of investments. The investment choices and expected rates of return on each one of them are: Investment Mutual Fund A Mutual Fund B Money Market Fund Goverenment Bonds projected rate of return 0.12 0.09 0.08 0.085

Share Y Share X

0.16 0.18

The investor wants at least 35 percent of his investment in government bonds. Because of the higher perceived risk of the two shares, he has specified that the combined investment in these not to exceed rs. 80000. the investor has also specified that at least 20 percent of the investment should be in the money market fund and that the amount of money invested in shares should not exceed the amount invested in mutual funds. His final investment condition is that the amount invested in mutual fund A should be no more than the amount invested in mutual fund B. the problem is to decide the amount of money to invest in each alternative so as to obtain the highest annual total return. Formulate the above as Linear Programming Problem.