Problem:
Finco must determine how much investment and debt to undertake during the next year. Each dollar invested reduces the NPV of the conpany by 10 cents, and each dollar of debt increases the NPV by 50 cents (due to debuctibility 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.
Required:
Question 1) Set up an LP whose solution will tell Finco how to maximize its NPV.
Question 2) Then graphically solve the LP.
Provide complete solution of the given numerical problem.