February 19, 2017

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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