12.4

Marble Construction estimates that its WACC is 8% if equity comes from retained earnings. However, if the company issues new stock to raise new equity, it estimates that its WACC will rise to 8.9%. The company believes that it will exhaust its retained earnings at $2,600,000 of capital due to the number of highly profitable projects available to the firm and its limited earnings. The company is considering the following seven investment projects: Project Size IRR $ on moow D 650,000 1,090,000 950,000 1,230,000 470,000 650,000 700,000 13.7% 13.3 8.5 9.4 8.6 9.6 8.1 Assume that each of these projects is independent and that each is just as risky as the firm's existing assets. Which set of projects should be accepted? Project A A Project B Project C Project D -Select- -Select- -Select- -Select- -Select- -Select- -Select- Project E Project F A A Project G What is the firm's optimal capital budget? Round your answer to the nearest dollar