Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Ziege Systems is considering the following independent projects for the coming year: Project Required Investment Rate of Return Risk A $4 million 12.25% High B

Ziege Systems is considering the following independent projects for the coming year:

Project Required Investment Rate of Return Risk
A $4 million 12.25% High
B 5 million 14.75 High
C 3 million 10.25 Low
D 2 million 10.00 Average
E 6 million 13.25 High
F 5 million 13.25 Average
G 6 million 8.00 Low
H 3 million 12.25 Low

Ziege's WACC is 10.75%, but it adjusts for risk by adding 2% to the WACC for high-risk projects and subtracting 2% for low-risk projects.

Which projects should Ziege accept if it faces no capital constraints?

Project A -Select-AcceptRejectItem 1
Project B -Select-AcceptRejectItem 2
Project C -Select-AcceptRejectItem 3
Project D -Select-AcceptRejectItem 4
Project E -Select-AcceptRejectItem 5
Project F -Select-AcceptRejectItem 6
Project G -Select-AcceptRejectItem 7
Project H -Select-AcceptRejectItem 8

If Ziege can only invest a total of $13 million, which projects should it accept?

Project A -Select-AcceptRejectItem 9
Project B -Select-AcceptRejectItem 10
Project C -Select-AcceptRejectItem 11
Project D -Select-AcceptRejectItem 12
Project E -Select-AcceptRejectItem 13
Project F -Select-AcceptRejectItem 14
Project G -Select-AcceptRejectItem 15
Project H -Select-AcceptRejectItem 16

If Ziege can only invest a total of $13 million, what would be the dollar size of its capital budget? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places.

$ million

Suppose Ziege can raise additional funds beyond the $13 million, but each new increment (or partial increment) of $5 million of new capital will cause the WACC to increase by 1%. Assuming that Ziege uses the same method of risk adjustment, which projects should it now accept?

Project A -Select-AcceptRejectItem 18
Project B -Select-AcceptRejectItem 19
Project C -Select-AcceptRejectItem 20
Project D -Select-AcceptRejectItem 21
Project E -Select-AcceptRejectItem 22
Project F -Select-AcceptRejectItem 23
Project G -Select-AcceptRejectItem 24
Project H -Select-AcceptRejectItem 25

What would be the dollar size of its capital budget? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places.

$ million

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Lords Of Finance The Bankers Who Broke The World

Authors: Liaquat Ahamed

1st Edition

0143116800, 978-0143116806

More Books

Students also viewed these Finance questions

Question

What if there were no limits?

Answered: 1 week ago

Question

Prepare an ID card of the continent Antarctica?

Answered: 1 week ago