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A company has a WACC 1 = 12.5% for funding up to $4 million when retained earnings are used. They also have a WACC 2
A company has a WACC1= 12.5% for funding up to $4 million when retained earnings are used. They also have a WACC2 = 13.7% for funding above $4 million when new equity is raised. If they have the following independant investment opportunities, which projects should the company include in their budget? What is the company's optimal budget?
Project A: Cost of $2 million; IRR 20%
Project B: Cost of $3 million; IRR 14%
Project C: Cost of $4 million; IRR 13%
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