Cardinal Capital is a company that makes relatively high risk/high return investments in promising small businesses across multiple markets. The company is in the process of developing a strategy/policy for its 2017 investment portfolio, which will have a maximum of $15 Million with which to work. The table below provides data gathered from analysis of historical investments and future projections.
|
Type of Business |
Median Rate of Return |
Loss Rate |
|
Software |
25% |
16% |
|
9% |
5% |
|
|
Retail |
5% |
4% |
|
Manufacturing |
12% |
6% |
|
Tourism |
15% |
9% |
The median rate of return is what the company has decided to use as a tool to inform decisions about the type of businesses in which to invest. The loss rate represents the historical likelihood that the company will lose all or part of its investment. For calculation purposes it is assumed that the entire investment is lost.
To meet its competition, business, and community goals, Cardinal has several entering goals:
-Retail and Restaurant/Food Production must be at least 20% of the dollar value of all investments
-Software must be no more than 30% of the dollar value of all investments
-Manufacturing must be at least 15% of the dollar value of all investments
Please provide the investment strategy that maximizes projected profit and meets the above constraints (it is strongly recommended that you show your work).Additionally please indicate what other questions may be asked by Cardinal to further refine its strategy.
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