Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Marble Construction estimates that its WACC is 10% if equity comes from retained earnings. However, if the company issues new stock to raise new equity,

Marble Construction estimates that its WACC is 10% 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 10.9%. The company believes that it will exhaust its retained earnings at $2,400,000 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
A $ 630,000 13.5 %
B 1,060,000 13.2
C 1,050,000 11.3
D 1,200,000 10.4
E 530,000 10.7
F 630,000 11.7
G 720,000 10.3

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 -Select-acceptdon't acceptItem 1
Project B -Select-acceptdon't acceptItem 2
Project C -Select-acceptdon't acceptItem 3
Project D -Select-acceptdon't acceptItem 4
Project E -Select-acceptdon't acceptItem 5
Project F -Select-acceptdon't acceptItem 6
Project G -Select-acceptdon't acceptItem 7

What is the firm's optimal capital budget? Round your answer to the nearest dollar.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Introduction To Personal Finance

Authors: John E Grable, Lance Palmer

1st Edition

1119626633, 9781119626633

More Books

Students also viewed these Finance questions

Question

Should this plan be extended to pressers in the other stores?

Answered: 1 week ago