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Marble Construction estimates that its WACC is 12% if equity comes from retained earnings. However, if the company issues new stock to raise new equity, it estimates that its WACC will rise to 12.5%. The company believes that it will exhaust its retained earnings at $2,700,000 of capital due to the number of highly profitable projects available to the firm and its limited earnings. The company is considering the following seven investment projects: Project Size IRR $ 630,000 13.8% 1,050,000 13.7 990,000 12.1 D 1,220,000 13.1 480,000 630,000 E 12.2 F 11.8 660,000 13.4 Assume that each of these projects is independent and that each is just as risky as the firm's existing assets. Which set of projects should be accepted? Project A Project B Project C -Select- Select -Select Project D -Select -Select- -Select- Project E Project F Project G -Select- What is the firm's optimal capital budget? Round your answer to the nearest dollar.

Marble Construction estimates that its WACC is 12% if equity comes from retained earnings. However, if the company issues new stock to raise new equity, it estimates that its WACC will rise to 12.5%. The company believes that it will exhaust its retained earnings at $2,700,000 of capital due to the number of highly profitable projects available to the firm and its limited earnings. The company is considering the following seven investment projects: Project Size IRR $ 630,000 13.8% 1,050,000 13.7 990,000 12.1 D 1,220,000 13.1 480,000 630,000 E 12.2 F 11.8 660,000 13.4 Assume that each of these projects is independent and that each is just as risky as the firm's existing assets. Which set of projects should be accepted? Project A Project B Project C -Select- Select -Select Project D -Select -Select- -Select- Project E Project F Project G -Select- What is the firm's optimal capital budget? Round your answer to the nearest dollar.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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5. Problem 12.05 (Optimal Capital Budget) еВook Marble Construction estimates that its WACC is 12% if eguity comes from retained earnings. However, if the company issues new stock to raise new equity, it estimates that its WACC will rise to 12.5%. The company believes that it will exhaust its retained earnings at $2,700,000 of capital due to the number of highly profitable projects available to the firm and its limited earnings. The company is considering the following seven investment projects: Project Size IRR A $ 630,000 13.8% B 1,050,000 13.7 990,000 12.1 D 1,220,000 13.1 480,000 12.2 F 630,000 11.8 G 660,000 13.4 Assume that each of these projects is independent and that each is just as risky as the firm's existing assets. Which set of projects should be accepted? Project A |-Select- Project B |-Select- Project C -Select- Project D |-Select- Project E -Select- Project F -Select- Project G -Select- What is the firm's optimal capital budget? Round your answer to the nearest dollar. 24
Transcribed Image Text:5. Problem 12.05 (Optimal Capital Budget) еВook Marble Construction estimates that its WACC is 12% if eguity comes from retained earnings. However, if the company issues new stock to raise new equity, it estimates that its WACC will rise to 12.5%. The company believes that it will exhaust its retained earnings at $2,700,000 of capital due to the number of highly profitable projects available to the firm and its limited earnings. The company is considering the following seven investment projects: Project Size IRR A $ 630,000 13.8% B 1,050,000 13.7 990,000 12.1 D 1,220,000 13.1 480,000 12.2 F 630,000 11.8 G 660,000 13.4 Assume that each of these projects is independent and that each is just as risky as the firm's existing assets. Which set of projects should be accepted? Project A |-Select- Project B |-Select- Project C -Select- Project D |-Select- Project E -Select- Project F -Select- Project G -Select- What is the firm's optimal capital budget? Round your answer to the nearest dollar. 24
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