Question
Which of the projects will the company accept? (a) No budget limitation (b) subject to budget Project Required investment (in millions) Risk-adjusted WACC NPV (in
Which of the projects will the company accept?
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| (a) No budget limitation | (b) subject to budget | |
Project | Required investment (in millions) | Risk-adjusted WACC | NPV (in millions) | Profitability Index | Ranking | Available Capital | Ranking |
A | $200 | H, | $50 |
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B | 100 | H, | 45 |
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C | 150 | L, | 40 |
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D | 130 | A, | 30 |
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E | 125 | H, | 20 |
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F | 100 | A, | 15 |
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G | 50 | L, | 10 |
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H | 120 | L, | -5 |
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Except for projects B and C are mutually exclusive, all the other projects are independent. The company estimates that its WACC is 10.5%. The company adjusts for risk by adding 2 percentage points to the WACC for high-risk projects and subtracting 2 percentage points from the WACC for low-risk projects. The company has a limited capital budget of $600.
Select one:
a. B, C, D, F
b. B, C, D, E, H
c. B, D, F, G
d. A, B, D, F
e. A, B, D, F, G
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