5-) I would recommend the model only when the situation of the new client is similar. If new clients have similar objectives and constraints, this model can be use. However, J.D. Williams is an advisory firm that works for the individual investors according to their specific needs. So, i would not recommend the use of this asset allocation model as a general guide to financial investment. TRUCK LEASING STRATEGY In this problem, Bob Reep the president of the Reep Construction recently won a contract, for a new rest area for the Pennsylvania. Bob Reep estimated that it would take four months to perform the new project and that 10, 12, 14 and 8 trucks would be needed in months 1 through 4. The firm currently has 20 trucks but some of these trucks will used by existing projects. These trucks were obtained last year when Bob signed a long term lease with PennState Leasing. Thus, to complete the Project, Bob will have to lease additional trucks Bob learned that he can obtain short-term leases for 1-4 months. Short term leases differ from long-term leases in that the short term leasing plans include the cost of both a truck and a driver. But, Bob will use his own drivers even if costs higher. So, Bob would like the acquire a lease that would minimize the cost of meeting the monthly trucking requirements for his new project. Required Truck(s) for Available Truck(s) on Need to the Project Hand Lease (unit) (unit) Truck(s) (unit) Month 1 10 1 9 Month 2 12 2 10 Month 3 14 3 cr Month 4 8 1 7 ‘Table 1.9 : Truck Leasing Strategy Variables 25Daily Fuel Cost = $100 / truck Monthly fuel costs for short term and long term leased trucks Monthly fuel cost per truck = 20 * $100 = $2.000 1-) Decision Variables Xj = Number of trucks from a short term lease in month i for period of J month(s) For example Xes means, number of trucks leased for 3 months on the 2nd month of the project. Y; = Number of trucks from a long term lease used in month i 2.) Objective Function Definition Decision Variables Xu, Xei, XoXo For 1 month X12,X22,Xaz For2month 2 ($3.70 + $2,000) = $11.400 X1s,Xea For3month 3 ($3.225 + $2.00) =$15.675 Xu For4month 4 ($3.040 + $2,000) = $20.160 Min Z = 6,000X:) + 11.400Xi2 + 15.675Xis + 20.160Xis + 6,000X2i + 11.400Xo» + 15.675X20 + 6.000Xs1 + 11.400Xs2 + 6.000Xa + 2.000Y: + 2.000Y2 + 2000Ys + 2000Y4 Subject to 1) Xu + Xiot Xin + Xu + Yi = 10 2) Xig+ Xin + Kus + Xai + Xag + Xo + Yo= 12. 8) Xis + Xta + Xoo + Kus + Xu + Xu + Ys= 14 264) Xu + Xan + Xw + Xu + ¥e= 5) Yi<=1 6) Y2<=2 DYs 8) Ya<=1 3+) Solutions 1.) The optimal leasing plan as follow: The number of leased trucks in Xj and Yi; Xo | xu | xs | x: | vy | yy [| vw | ys 3 | 6 | 1 | a [| 1 | 2 | 3 [ 2 15.675X1s + 20.160X14 + 15,675X2s + 6.000Xs: + 2.000Y1 + 2.000Y2 + 2000Y3 + 2000Y: Optimal Leasing Cost = $203.60 costes Pio) Nasu fortonh 5000 a » 0 for2Mowh 1500 2 2 2 fer3monh 15875 3 wee ow fordMonh — 2180 & a: ' 6 le 1 “$= am = re 2 a: poe : a: Le 1 Figure 4.0: Truck Leasing Strategy Question 1 Excel Solution 72+) The cost associated with the optimal leasing plan as follow: Our short term leased truck includes also driver costs but Bob Reep want to use our own, drivers. So, in addition to our optimal leasing plan, the driver costs of short term and long term leased trucks will be add, Driver Cost = $20 / hour Monthly Driver Cost = $20 * Shift (hours ) * Number of Used Trucks Used Truck in Project Shift Driver Cost (hours) eo Month 1 10 160 32,000 Month 2 12 160 38.400 Month 3 4 160 44.800 Month 4 8 160 25.600 ‘Table 2.0: Truck Leasing Strategy Question 2 Driver Costs ‘Total Driver Cost = $140.800 ‘The Cost Associated with the Optimal Leasing Plan = $140.800 Total Cost for the Proje $140.800 = $344,460 8-) The cost for Reep Construction to maintain its current policy of no layoffs: In short term leasing plan, the PennState company gives the driver along with the trucks. But, Bob Reep chose to use his own drivers and pay them $20 an hour. So, the cost of maintain no layoffs poliey is; 28Total Used Truck Used for Used for Shift’ Driver Cost in Project Long Term — Short Term for Short Leased Leased (hours) Term Truck Truck leased($) Month 1 10 1 9 160 28.800 Month 2 12 2 10 160 32.000 Month 3 14 3 11 160 35.200 Month 4 8 1 7 160 22.400 Table 2.1: Truck Leasing Strategy Question 3 Dever Costs The cost of maintaining no layoffs policy 118.400 29