Prepare investment opportunity schedule and marginal cost of capital curve, then determine the optimum capital budget.

Assumptions:

Information Given:

Ks= 0.12 Growth Rate = 7.8%

Rf = 6% Next Year's Dividends = $0.22

Km = 13%

RE1 = RE

Tax Rate = 30%

Beta = 1.59968

f = 10%

Kd = 8% for new issue, the higher rate of return for the firm's projects is 25%

Price of stock = 51.75

If your company does not have REo for the year that you are analyzing, assume REo = $10 million.