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Ziege Systems is considering the following independent projects for the coming year: Project Required Investment Rate of Return Risk A $4 million 13% High B

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

Project Required Investment Rate of Return Risk
A $4 million 13% High
B 5 million 10.5 High
C 3 million 8.5 Low
D 2 million 8.25 Average
E 6 million 11.5 High
F 5 million 11.5 Average
G 6 million 6.25 Low
H 3 million 10.5 Low

Ziege's WACC is 9.00%, but it adjusts for risk by adding 2% to the WACC for high-risk projects and subtracting 2% for low-risk projects.

  1. 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
  2. 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

  3. 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

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