Question
A firm is reviewing its next years budget with the following projects. Project A B C D IRR 9.0% 9.5% 10.5% 10.0% Capital Required $0.5
- A firm is reviewing its next years budget with the following projects.
| Project | A | B | C | D |
| IRR | 9.0% | 9.5% | 10.5% | 10.0% |
| Capital Required | $0.5 million | $0.7 million | $1.5 million | $0.8 million |
A capital structure of 60% debt and 40% equity needs to be kept. Besides $0.6 million retained earnings, firm can also borrow up to $1.2 million at an after-tax cost of 5%. For any new debt, the rate is 7% after tax. The cost of existing equity is 9% and the cost of new equity is 12%. How much is the optimal budget?
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Cost management a strategic approach
Authors: Edward J. Blocher, David E. Stout, Gary Cokins
5th edition
73526940, 978-0073526942
