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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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