(Solution) - Joe Jones wants to establish a construction fund or sinking -(2025 Original AI-Free Solution)

Paper Details

Joe Jones wants to establish a construction fund (or sinking fund) to pay for a new bowling alley he is having built. Construction of the bowling alley is expected to take six months and cost $300,000. Joe?s contract with the construction company requires him to make payments of $50,000 at the end of the second and fourth months, and a final payment of $200,000 at the end of the sixth month when the bowling alley is completed. Joe has identified four investments that he can use to establish the construction fund; these investments are summarized in the following table:

The table indicates that investment A will be available at the beginning of each of the next six months, and funds invested in this manner mature in one month with a yield of 1.2%. Similarly, funds can be placed in investment C only at the beginning of months 1 and/or 4, and mature at the end of three months with a yield of 5.8%. Joe wants to minimize the amount of money he must invest in month 1 to meet the required payments for this project.
a. Draw a network flow model for this problem.
b. Create a spreadsheet model for this problem and solve it.
c. What is the optimalsolution?