# Optimal amount of R&D spending for this firm

Answer the following lettered questions on the basis of the information in this table:

Amount of R&D, Millions Return on R&D, %

$10 16

20 14

30 12

40 10

50 8

60 6

a. If the interest-rate cost of funds is 8 percent, what will be the optimal amount of R&D spending for this firm?

b. Explain why $20 million of R&D spending will not be optimal.

Why won't $60 million be optimal either?

https://brainmass.com/economics/banking/optimal-amount-spending-firm-99864

#### Solution Preview

a. If the interest-rate cost of funds is 8 percent, what will be the optimal amount of R&D spending for this firm?

First, we need to find the remaining amount left for the firm after the deduction of the cost of funds.

Expected Rate of ...

#### Solution Summary

This solution is comprised of a detailed explanation to find the optimal amount of R&D spending for this firm.