A financial advisor at Diehl Investments identified two comp

A financial advisor at Diehl Investments identified two companies that are likely candidates for a takeover in the near future. Eastern Cable is a leading manufacturer of flexible cable systems used in the construction industry, and ComSwitch is a new firm specializing in digital switching systems. Eastern Cable is currently trading for $40 per share, and ComSwitch is currently trading for $25 per share. If the takeovers occur, the financial advisor estimates that the price of Eastern Cable will go to $55 per share and ComSwitch will go to $43 per share. At this point in time, the financial advisor has identified ComSwitch as the higher risk alternative. Assume that a client indicated a willingness to invest a maximum of $50,000 in the twp companies. The client wants to invest at least $15,000 in Eastern Cable and at least $10,000 in ComSwitch. Because of the higher risk associated with ComSwitch, the financial advisor has recommended that at most $25,000 should be invested in ComSwitch.

You need to maximize the total return for the investment.

Determine your variables

Set up your objective function and your constraints

Plug into spread sheet and get the optimal solution

Solution