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    Optimal amount of R&D spending for this firm

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    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?

    © BrainMass Inc. brainmass.com October 9, 2019, 6:51 pm ad1c9bdddf
    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.

    $2.19