Hampton Manufacturing estimates that its WACC is 12.5%. The company is considering the following investment projects: Project Size IRR A $ 750,000 14.0% B $1,050,000 13.2% C $1,000,000 11.0% D $1,250,000 10.7% E $ 750,000 13.2% F $ 650,000 12.7% G $ 500,000 10.2%

a. Assume that each of the projects is independent and that each is just as risky as the firms existing assets. Which set of projects should be accepted, and what is the firms optimal capital budget?

b. Now assume that Projects A and B are mutually exclusive. Which set of projects should be accepted, and what is the firms optimal capital budget?

c. Management has decided to adopt capital rationing for the next year. The budget limit for the next year is $3million. Assume that all projects are independent. Which set of project should be accepted, and what is the proposed capital budget total for the coming year?