Question
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 | 10.25 | Average |
E | 6 million | 13.25 | High |
F | 5 million | 13.25 | Average |
G | 6 million | 8.25 | Low |
H | 3 million | 12.00 | 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.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started