PLEASE SPECIFY WHERE TO PUT OCB (XX,XX) ON ABOVE GRAPH

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Avery Manufacturing is considering the following capital projects. The internal rate of return (IRR) has been calculated for each project. Project Cost (Millions of dollars) IRR A $40 11.6% B $40 11.2% $80 10.8% The optimal capital budget (OCB) is the budget size that maximizes the firm's wealth given the opportunities for investment and the cost of capital. Avery's managers have plotted the marginal cost of capital (MCC) schedule to reflect how the cost of capital increases as new capital is raised. Assume that the proposed projects are independent and equally risky and that their risks are equal to Avery's average existing assets. ? 12.0 11.8 OCB 11.6 11.4 11.2 WACC/IRR (Percent) 11.0 10.8 10.6 10.4 10.2 0 20 40 120 140 160 60 80 100 New Capital ($ Millions) Refer to the preceding graph, and place the black point (plus symbol) at the point that represents the OCB to find the answer. What is Avery Manufacturing's optimal capital budget? $90.0 million $120.0 million $100.0 million $80.0 million What is the company's weighted average cost of capital (WACC) at the optimal capital budget? 10.8% 11.0% 12.0% 11.6% The required rate of return of an investor is the rate of return that an investor demands to purchase a firm's stocks or bonds and thus provide funds for capital investment. Therefore, required returns from the investors' point of view correspond to the required returns or the weighted average cost of capital (WACC) from the firm's point of view. Indicate in the following table whether each of the statements about WACC and the required rates of return of investors is true or false. Statement True False Flotation costs increase the cost of newly issued stock compared to the cost of the firm's existing, or already outstanding, common stock or retained earnings. The firm's cost of debt is what an investor is willing to pay for the firm's stock before considering flotation costs. The amount that an investor is willing to pay for a firm's bonds is inversely related to the firm's cost of debt without considering the cost of issuing the bonds. o o A firm's cost of capital is determined by the investors who purchase the firm's stocks and bonds