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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?

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

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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 ...

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