A Financier Plans to Invest Up to $7 Million in Three

question 42

Multiple Choice

A financier plans to invest up to $7 million in three projects. She estimates that project A will yield a return of 5% on her investment, project B will yield a return of 10% on her investment, and project C will yield a return of 20% on her investment. Because of the risks associated with the investments, she decided to put not more than 20% of her total investment in project C. She also decided that her investments in projects B and C should not exceed 60% of her total investment. Finally, she decided that her investment in project A should be at least 60% of her total investment. How much should the financier invest in each project if she wishes to maximize the total returns on her investments? What is the maximum amount she can expect to make from her investments? ​

• A) Project A: $1,350,000, project B: $1,350,000, and project C: $2,900,000; maximum profit: $690000
• B) Project A: $2,850,000, project B: $2,900,000, and project C: $1,350,000; maximum profit: $230,000
• C) Project A: $1,400,000, project B: $2,800,000, and project C:$2,800,000; maximum profit: $910,000
• D) Project A: $2,800,000, project B: $2,800,000, and project C: $1,400,000; maximum profit: $700,000

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Definitions:

Entry

The act of a new competitor joining a market, which can influence market dynamics, prices, and competitive strategies.

Input Prices

Refers to the costs associated with the goods and services used in the production of another product, affecting the overall cost of production.

Average Variable Costs

The total variable costs divided by the number of units produced, indicating the average cost of producing each unit excluding fixed costs.

Short-Run Losses

Financial deficits that a firm experiences in the period where at least one factor of production is fixed, leading to an inability to cover total costs.