Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Marble Construction estimates that its WACC is 11% if equity comes from retained earnings. However, if the company issues new stock to raise new equity,

Marble Construction estimates that its WACC is 11% 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 11.5%. The company believes that it will exhaust its retained earnings at $2,700,000 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 $ 670,000 14.1 %
B 1,020,000 13.7
C 1,020,000 11.1
D 1,250,000 11.7
E 510,000 11.6
F 670,000 11.0
G 700,000 10.9

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

Students also viewed these Finance questions