Rienzi Farms Grows Sugar Cane and Soybeans on Its 500

question 58

Essay

Rienzi Farms grows sugar cane and soybeans on its 500 acres of land. An acre of soybeans brings a $1000 contribution to overhead and profit; an acre of sugar cane has a contribution of $2500. Because of a government program no more than 150 acres may be planted in soybeans. During the planting season 1800 hours of planting time will be available. Each acre of soybeans requires 2 hours, while each acre of sugar cane requires 6 hours. The company seeks maximum contribution (profit) from its planting decision.
(a) Formulate the problem as a linear program.
(b) Solve using the corner-point method.

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Definitions:

Green Shoe Option

A clause contained within the underwriting agreement of an IPO that allows underwriters to purchase up to an additional 15% of shares at the offering price.

Abnormal Returns

Returns on a security or portfolio that differ significantly from the expected rate, given the asset's risk level and the market's overall performance.

Spread

The difference between two prices, yields, or interest rates, commonly used in financial markets to measure the gap between bid and ask prices.

Public Issue

The creation and sale of securities on public markets.