Question
OPTIMAL CAPITAL BUDGET Marble Construction estimates that its WACC is 10% if equity comes from retained earnings. However, if the company issues new stock to
OPTIMAL CAPITAL BUDGET
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 10.8%. 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 | $650,000 | 14.0% |
B | 1,050,000 | 13.5 |
C | 1,000,000 | 11.2 |
D | 1,200,000 | 11.0 |
E | 500,000 | 10.7 |
F | 650,000 | 10.3 |
G | 700,000 | 10.2 |
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 |
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? Write out your answer completely. For example, 13 million should be entered as 13,000,000. $
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