Chiles Incorporated's managers are determining the company's optimal capital budget for the next year. Chiles is considering the following projects: Project A B C D E C Size 500,000 - $200,000 16% Rate of 300,000 Return 100,000 400,000 12 14 11 10 200,000 10 400,000 7 Risk High Average Low High Average Low Low
Chiles Incorporated's managers are determining the company's optimal capital budget for the next year. Chiles is considering the following projects: Project A B C D E C Size 500,000 - $200,000 16% Rate of 300,000 Return 100,000 400,000 12 14 11 10 200,000 10 400,000 7 Risk High Average Low High Average Low Low
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Chiles Incorporated's managers are determining the company's optimal capital budget for
the next year.
Chiles is considering the following projects:
Project
A
B
C
D
E
G
Size
500,000
$200,000 16%
300,000
100,000
Rate of
400,000 12
200,000
Return
400,000
14
11
10
10
Risk
High
Average
Low
High
Average
Low
Low
Chiles estimates its WACC is 10.5% and all projects are independent. The company adjusts
for risk by adding 2% to the WACC for high-risk projects and subtracting 2% from the
WACC for low-risk projects. Which of the projects will the company accept?
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