OPTIMAL CAPITAL BUDGET

Hampton Manufacturing estimates that its WACC is 12.5%. The company is considering the following seven investment projects:

Project	Size	IRR
A	$750,000	14.0%
B	1,250,000	13.5
C	1,250,000	13.2
D	1,250,000	13.0
E	750,000	12.7
F	750,000	12.3
G	750,000	12.2

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	-Select-AcceptDon't acceptItem 1 ANSWER SELECT ONE ACCEPT OR DONT ACCEPT
Project B	-Select-AcceptDon't acceptItem 2 {C}ANSWER SELECT ONE ACCEPT OR DONT ACCEPT
Project C	-Select-AcceptDon't acceptItem 3 ANSWER SELECT ONE ACCEPT OR DONT ACCEPT
Project D	-Select-AcceptDon't acceptItem 4 ANSWER SELECT ONE ACCEPT OR DONT ACCEPT {C}
Project E	-Select-AcceptDon't acceptItem 5 ANSWER SELECT ONE ACCEPT OR DONT ACCEPT
Project F	-Select-AcceptDon't acceptItem 6 ANSWER SELECT ONE ACCEPT OR DONT ACCEPT {C}
Project G	-Select-AcceptDon't acceptItem 7 ANSWER SELECT ONE ACCEPT OR DONT ACCEPT

What is the firm's optimal capital budget? Write out your answer completely. For example, 13 million should be entered as 13,000,000. $ ANSWER

Now assume that Projects C and D are mutually exclusive. Project D has an NPV of $ 400,000, whereas Project C has an NPV of $350,000. Which set of projects should be accepted?

Project A	-Select-AcceptDon't acceptItem 9 {C}ANSWER SELECT ONE ACCEPT OR DONT ACCEPT
Project B	-Select-AcceptDon't acceptItem 10 ANSWER SELECT ONE ACCEPT OR DONT ACCEPT
Project C	-Select-AcceptDon't acceptItem 11 ANSWER SELECT ONE ACCEPT OR DONT ACCEPT {C}
Project D	-Select-AcceptDon't acceptItem 12 ANSWER SELECT ONE ACCEPT OR DONT ACCEPT
Project E	-Select-AcceptDon't acceptItem 13 ANSWER SELECT ONE ACCEPT OR DONT ACCEPT {C}
Project F	-Select-AcceptDon't acceptItem 14 ANSWER SELECT ONE ACCEPT OR DONT ACCEPT
Project G	-Select-AcceptDon't acceptItem 15 ANSWER SELECT ONE ACCEPT OR DONT ACCEPT {C}

What is the firm's optimal capital budget in this case? Write out your answer completely. For example, 13 million should be entered as 13,000,000. $ ANSWER

Ignore Part b and now assume that each of the projects is independent but that management decides to incorporate project risk differentials. Management judges Projects B, C, D, and E to have average risk, Project A to have high risk, and Projects F and G to have low risk. The company adds 2% to the WACC of those projects that are significantly more risky than average, and it subtracts 2% from the WACC of those projects that are substantially less risky than average. Which set of projects should be accepted?

Project A	-Select-AcceptDon't acceptItem 17 ANSWER SELECT ONE ACCEPT OR DONT ACCEPT {C}
Project B	-Select-AcceptDon't acceptItem 18 ANSWER SELECT ONE ACCEPT OR DONT ACCEPT
Project C	-Select-AcceptDon't acceptItem 19 ANSWER SELECT ONE ACCEPT OR DONT ACCEPT {C}
Project D	-Select-AcceptDon't acceptItem 20 ANSWER SELECT ONE ACCEPT OR DONT ACCEPT
Project E	-Select-AcceptDon't acceptItem 21 ANSWER SELECT ONE ACCEPT OR DONT ACCEPT {C}
Project F	-Select-AcceptDon't acceptItem 22 ANSWER SELECT ONE ACCEPT OR DONT ACCEPT
Project G	-Select-AcceptDon't acceptItem 23 ANSWER SELECT ONE ACCEPT OR DONT ACCEPT {C}

What is the firm's optimal capital budget in this case? Write out your answer completely. For example, 13 million should be entered as 13,000,000. $ ANSWER

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Solution

VERYIMPORTANT PROBLEM PLEASE HELP ME SOLVE ITS FOR IMPORTANT CLASS