Question
A financial advisor at RBC investments identified two companies that are likely candidates for a takeover in the near future. Eagle Cable Systems (ECS) and
A financial advisor at RBC investments identified two companies that are likely candidates for a takeover in the near future. Eagle Cable Systems (ECS) and Computer Technology Systems (CTS). ECS is currently trading for $50 per share and CTS is currently trading for $25 per share. If the takeovers occur, the financial adviser estimates that the price of ECS will go to $65 per share and CTS will go to $45 per share. At this point in time, the financial adviser identified CTS as the higher risk alternative. Assume that a client who indicated a willingness to invest a maximum of $50,000 in the two companies wants to invest at least $15,000 in ECS and at least $10,000 in CTS. Because of the higher risk associated with CTS, the financial adviser recommends that at most $25,000 should be invested in CTS. a. Formulate a linear programing model that maximizes the total return for the investment. [1 mark] (Hint: Let E = number of shares of ECS and C = number of shares of CTS) b. Graph the feasible region, determine the coordinates and find the optimal solution. [
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