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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.
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