•  

Finco must determine how much investment and debt to undertake during the next year. Each dollar invested reduces the NPV of the company by $0.10, and each dollar of debt increases the NPV by $0.50 (due to deductibility of interest payments). Finco can invest at most $ 1 million during the coming year. Debt can be at most 40% of investment. Finco now has $800,000 in cash available. All investment must be paid for from current cash or borrowed money. Set up and solve an LP whose solution will tell Finco how to maximize its NPV.