The management of Florida Potato Industries (FPI) is planning next years capital budget. The companys earnings and dividends are growing at a constant rate of 4.5%. The last dividend (DIV0) was $0.65; and the current equilibrium stock price is $7.85. FPI can raise new debt at a 11% before-tax cost. FPI is at its optimal capital structure which is 32% debt and 68% equity, and the firms marginal tax rate is 36%. FPI has the following independent, indivisible, and equally risky investment opportunities. What is FPIs WACC and what is FPIs optimal capital budget? Explain!

Project Cost Rate of Return WACC Accept or Reject B -$12,000 -$11,000 -$15,000 -$25,000 14% 17% 16% 12% Optimal Capital Budget