After calculating the Marginal Cost of Capital, the financial vice president of Illinois Bio Technologies (IBTECH) asks Julie Owens, IBTECH's treasurer, to determinate the optimal capital budget for the coming year. Different units, across the company, have presented the following projects:

Project

Cost

MIRR

A

600

14.00%

B

800

13.00%

C

800

16.50%

D

550

14.57%

E

750

15.75%

F

400

12.00%

Owens has turned the task to you and has prepared the following additional questions:

12.What is the main advantage of using MIRR (instead of IRR) in the calculation of Optimal Capital Budget? (Hint: remember that IBTECH has two divisions, one with high business risk and other with low business risk)

13.Graph the Marginal Cost of Capital (see question 10) along with the Investment Opportunity Set (IOS).

a.What is the optimal Capital Budget?

b.Which projects should be accepted and which ones should be rejected? Explain