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The management of Ferri Phosphate Industries (FPI) is planning next years capital budget. FPI projects its net income at $7,500, and its payout ratio is

The management of Ferri Phosphate Industries (FPI) is planning next years capital budget. FPI projects its net income at $7,500, and its payout ratio is 40 percent. The companys earnings and dividends are growing at a constant rate of 5 percent, the last dividend paid, D0, was $0.90, and the current stock price is $8.59. FPIs new debt will cost 14 percent. If FPI issues new common stock, flotation costs will be 20 percent. FPI is at its optimal capital structure, which is 40 percent debt and 60 percent equity, and the firms marginal tax rate is 40 percent. FPI has the following independent, indivisible, and equally risky investment opportunities: Project Cost IRR A $15,000 17% B 20,000 14 C 15,000 16 D 12,000 15 What is FPIs optimal capital budget?

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