Question

A contractor, who has $12 million dollars budget, is planning for his 2019 investments. The average after tax yearly profit for public school and residential construction is 7% and 8%, respectively. The third option is to invest in the stock market where the average yearly profit is predicted to be 12% (after tax). In order to benefit from tax exemptions, the tax advisor recommends that contractor's involvement in public school construction be at least 3 times as compared to residential building. Investment in stock market is very risky, so the contactor is not willing to put more than $ 2 million in it. What is the best 2019 investment scenario? Calculate the corresponding profit. (use graphical procedure)

Answer 1

Given that A contractor, who has $ 12 million dollars budget, is planning for his 2019 investments. Arrant invested in stock marked is $ 2m which will have a return of 12% i.e. $ 240,000. For the balance $ 10m, amount to be invested in school construction should be $ 10 m/4 times 3 = $ 7.5m which will have a return of 7%, i.e., $ 525,000 Remaining amount of $ 2.5m will be invested in residential construction which will have a return of 8%, i.e $ 200,000. Total return is 240,000 + 525,000 + 200,000 = $ 965,500 Rate of return is 965,000/12,000,000 = 8.04%