QUESTION

Strong Construction Company is interested in taking loans from banks for some of
its projects P, Q, R, S, T. The rates of interest and the lending capacity differ from
bank to bank. All these projects are to be completed. The relevant details are
provided in the following table.
Interest rate in percentage for Max. Credit (in sh 000)
Bank P Q R S T
Equity 20 18 18 17 17 175
National Bank 16 16 16 15 16 100
Cooperative Bank 15 15 15 13 14 400
Amount required (sh 000) 200 150 130 125 75
Required:
a. Assuming the role of a consultant Using North West Corner , Least Cost
method and Vogels Approximation Method , advise this company as to how
it should take loans so that the total interest payable will be the least.
b. Test for Optimality using Stepping Stone Method [15 Marks]