The managers of United Medtronics are evaluating the following four projects for the coming budget period. The

Question:

The managers of United Medtronics are evaluating the following four projects for the coming budget period. The firm’s corporate cost of capital is 14%.

Project Cost IRR

A $15,000 ..........17%

B $15,000 ..........16%

C $12,000 ..........15%

D $20,000 ..........13%

A. What is the firms optimal capital budget?

B. Now, suppose Medtronic’s managers want to consider differential risk in the capitals budgeting process. Project A has a average risk, B has a below average risk, C has above average risk, and D has average risk. What is the firm’s optimal capital budget when differential risk is considered?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...