Finco must determine how much investment and debt to undertake during the next y

Question

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 $8000,000 in cash available. All investment must be paid for from current cash borrowed money. Set up an LP whose solution will tell Finco how to maximize its NPV. Then graphically solve the LP.

The final solution ends up being Debt = D = 0.4, investment = I = 1, and z = 0.1 I am just not sure how this optimal solution was achieved

Explanation / Answer

max z = .5x1 - .1 x2
s.t constraints
x2< = 1000000
x1<= 400000
x1 + x2 <= 800,000

X1>=0,X2>=0

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