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Calculating the amount that can be raised and invested

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If XYZ Corp. can undertake the following projects:

Project 1:
Required investment: $10 million
Expected rate of return: 12%

Project 2:
Required investment: $2 million
Expected rate of return: 15%

Project 3:
Required investment: $5 million
Expected rate of return: 10%

Project 4:
Required investment: $8 million
Expected rate of return: 17%

It can raise up to $10 million at a cost of capital of 10%
From $10 to $20 million at a cost of capital of 15%
Over $20 million, its cost of capital is 20%.

What is the amount of money (in millions) that will be raised and invested?

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Solution Summary

The solution describes the steps to calculate the amount that can be raised and invested in line with given proposals.

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Let us consider the investment with highest return i.e. Project 4.
Total investment required=$8 million
Expected rate of return=17%
This can be financed by the capital with 10% cost.
Total Capital raised= $8 ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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