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THE TAIWAN ELECTRONIC COMMUNICATIONS (TEC) PROBLEM 135

Managerial Report 3 Recommendations regarding how the total profit
contribution can be increased if additional
Perform an analysis of TJ’s product-mix problem,
quantities of nuts can be purchased.
and prepare a report for TJ’s president that summa-
4 A recommendation as to whether TJ’s
rizes your findings. Be sure to include information
should purchase an additional 1000 kilos of
and analysis on the following:
almonds for E1000 from a supplier who
1 The cost per kilo of the nuts included in the overbought.
Regular, Deluxe and Holiday mixes.
5 Recommendations on how profit contribution
2 The optimal product mix and the total profit could be increased (if at all) if TJ’s does not
contribution. satisfy all existing orders.

CASE PROBLEM 2 Investment Strategy

. D. Williams, Inc., is an investment advisory firm vided, how should the new client be advised to allo-
J that manages more than E120 million in funds cate the E800 000 among the growth, income and
for its numerous clients. The company uses an asset money market funds? Develop a linear programming
allocation model that recommends the portion of model that will provide the maximum yield for the
each client’s portfolio to be invested in a growth portfolio. Use your model to develop a managerial
stock fund, an income fund and a money market report.
fund. To maintain diversity in each client’s portfolio,
the firm places limits on the percentage of each
Managerial Report
portfolio that may be invested in each of the three
funds. General guidelines indicate that the amount 1 Recommend how much of the E800 000 should
invested in the growth fund must be between 20 per be invested in each of the three funds. What is
cent and 40 per cent of the total portfolio value. the annual yield you anticipate for the investment
Similar percentages for the other two funds stipulate recommendation?
that between 20 per cent and 50 per cent of the total 2 Assume thatthe client’srisk index couldbe increased
portfolio value must be in the income fund and at to 0.055. How much would the yield increase and
least 30 per cent of the total portfolio value must be howwouldtheinvestmentrecommendationchange?
in the money market fund.
3 Refer again to the original situation where the
In addition, the company attempts to assess the
client’s risk index was assessed to be 0.05. How
risk tolerance of each client and adjust the portfolio
would your investment recommendation change
to meet the needs of the individual investor. For
if the annual yield for the growth fund were
example, Williams just contracted with a new client
revised downward to 16 per cent or even to
who has E800 000 to invest. Based on an evalua-
14 per cent?
tion of the client’s risk tolerance, Williams assigned
4 Assume that the client expressed some concern
a maximum risk index of 0.05 for the client. The
about having too much money in the growth
firm’s risk indicators show the risk of the growth
fund. How would the original recommendation
fund at 0.10, the income fund at 0.07, and the
change if the amount invested in the growth
money market fund at 0.01. An overall portfolio risk
fund is not allowed to exceed the amount
index is computed as a weighted average of the
invested in the income fund?
risk rating for the three funds where the weights are
the fraction of the client’s portfolio invested in each 5 The asset allocation model you developed may
of the funds. be useful in modifying the portfolios for all of the
Additionally, Williams is currently forecasting firm’s clients whenever the anticipated yields for
annual yields of 18 per cent for the growth fund, 12.5 the three funds are periodically revised. What is
per cent for the income fund and 7.5 per cent for the your recommendation as to whether use of this
money market fund. Based on the information pro- model is possible?

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