Question
Ziege Systems is considering the following independent projects for the coming year: Project Required Investment Rate of Return Risk A $4 million 11.50% High B
Ziege Systems is considering the following independent projects for the coming year:
Project | Required Investment | Rate of Return | Risk |
A | $4 million | 11.50% | High |
B | 5 million | 14.00 | High |
C | 3 million | 9.50 | Low |
D | 2 million | 9.25 | Average |
E | 6 million | 12.50 | High |
F | 5 million | 12.50 | Average |
G | 6 million | 7.25 | Low |
H | 3 million | 11.50 | Low |
A) Ziege's WACC is 10.00%, but it adjusts for risk by adding 2% to the WACC for high-risk projects and subtracting 2% for low-risk projects. 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.
B) 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%. 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.
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