Question
Marble Construction estimates that its WACC is 8% if equity comes from retained earnings. However, if the company issues new stock to raise new equity,
Marble Construction estimates that its WACC is 8% 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 8.9%. The company believes that it will exhaust its retained earnings at $2,500,000 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 | $ 700,000 | 14.3 | % | ||
B | 1,020,000 | 13.2 | |||
C | 950,000 | 9.3 | |||
D | 1,180,000 | 9.4 | |||
E | 460,000 | 8.7 | |||
F | 700,000 | 8.3 | |||
G | 670,000 | 8.2 |
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 | -accept or not |
Project B | -accept or not |
Project C | -accept or not |
Project D | accept or not |
Project E | -accept or not |
Project F | -accept or not |
Project G | accept or not |
What is the firm's optimal capital budget? Round your answer to the nearest dollar.
$
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