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October 21, 2014

Homework Help: Linear Programming

Posted by ama on Monday, May 14, 2012 at 9:13am.

Finco must determine how much investment and debtto undertake during the next year. Each dollar invested reduces the NPV of the company by 10, and each dollar of debt increases the NPV by 50 (due to deductibility of interest payments). Finco can invest at most $1 millionduring the coming year. Debt can be at most 40% of investment. Finco now has $800,000 in cash available. Allinvestment must be paid for from current cash or borrowed money. Set up an LP whose solution will tell Finco how tomaximize its NPV.

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