Question
You are interested in expanding the small manufacturing firm you have recently bought. After an initial study, you have identified three areas in which you
You are interested in expanding the small manufacturing firm you have recently bought. After an initial study, you have identified three areas in which you might invest additional funds: (1) advertising and sales promotion, (2) manufacturing improvements, and (3) product research and development. You have $600,000 available to invest in these kinds of projects. You can invest in advertising and sales promotion programs every year, and each dollar invested in this manner is expected to yield a return 8% yearly. You can invest in manufacturing improvements over any two-year period, with an expected return (at the end of the two years) of 17%. An investment in product research and development would be tied up for any three-year period, with an expected return of 26% (at the end of the three years). To diversify the total initial investment you impose the first-year requirement that at least $40,000 must be invested in advertising and sales promotion programs, at least $50,000 in manufacturing improvements, and at least $60,000 in product research and development. In this situation, you want to know how much should be invested in each of the three alternatives, during each year of a five-year period, to maximize the invested in each of the three alternatives, during each year of a five-period, to maximize the value of your initial investment after five years, at which point, you plan to sell the business. Question 1: What is the maximum value attainable at the time of sale from the initial fund of $600,00? I need help with this because I am trying to invest in a business.
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