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What is the firm's optimal capital budget? Round your answer to the nearest dollar.

What is the firm's optimal capital budget? Round your answer to the nearest dollar.

Essentials Of Investments
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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Marble Construction estimates that its WACC is 8% 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 8.8%. The company believes that it will exhaust its retained earnings at $2,600,000 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 610,000 13.6% 1,030,000 13.6 990,000 8.6 D 1,200,000 9.1 E 490,000 8.7 F 610,000 8.3 G 750,000 9.4 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 аcсept Project B аcсept Project C аcсept Project D don't accept Project E don't accept : Project F don't accept : Project G аcсept What is the firm's optimal capital budget? Round your answer to the nearest dollar. $
Transcribed Image Text:Marble Construction estimates that its WACC is 8% 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 8.8%. The company believes that it will exhaust its retained earnings at $2,600,000 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 610,000 13.6% 1,030,000 13.6 990,000 8.6 D 1,200,000 9.1 E 490,000 8.7 F 610,000 8.3 G 750,000 9.4 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 аcсept Project B аcсept Project C аcсept Project D don't accept Project E don't accept : Project F don't accept : Project G аcсept What is the firm's optimal capital budget? Round your answer to the nearest dollar. $
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