Finco must determine how much investment undertake

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Q. Finco must determine how much investment also debt to undertake during next year. Each dollar invested reduces NPV of company by 10¢, also each dollar of debt increases NPV by 50¢ (due to deductibility of interest payments). Finco can invest at most $1 million during coming year. Debt can be at most 40% of investment. Finco now has $800,000 in cash or borrowed money. Set up an LP whose solution will tell Finco elucidate how to maximize its NPV.

Reference no: EM1377181

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