10-19 Ziege Systems is considering the following inde- ADJUSTING COST OF CAPITAL FOR RISK pendent projects for the coming year Project Required Investment Rate of Return Risk High High $4 million 5 million 3 million 2 million 6 million 5 million 6 million 3 million 14.0% 11.5 9.5 9.0 12.5 12.5 7.0 11.5 Average High Average Low Ziege's WACC is 10% but it adjusts for risk by adding 2% to the WACC for high-risk proj ects and subtracting 2% for low-risk projects a. Which projects should Ziege accept if it faces no capital constraints? b. If Ziege can only invest a total of $13 million, which projects should it accept, and what would be the dollar size of its capital budget? c. Suppose Ziege can raise additional funds beyond the $13 million, but each new increment (or partial increment) of $5 million of new capital will cause the WACC to increase by 1%. Assuming projects should it now accept, and what would be the dollar size of its capital budget? that Ziege uses the same method of risk adjustment, which