Marble Construction estimates that its WACC is % f equity comes from retained earnings However, if the company issues new stock to raise new equity, it estimates that its WACC will rise to 8.9%. The company believes that it will exhaust its retained earnings at $2,500,000 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 B C Size $ 640,000 1,040,000 1,000,000 1,180,000 470,000 9.3 D 9.2 E 8.7 F 82 G 8.3 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 Cent IRR 13.5% 13.8 640,000 650,000

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
icon
Related questions
icon
Concept explainers
Question
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 8.9%. The company believes that it will exhaust its retained earnings at $2,500,000 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:
Size
$ 640,000
1,040,000
1,000,000
1,180,000
470,000
640,000
G
650,000
8.3
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?
beled
Project
A
B
Select
Seled
Selec
C
D
t
Project A
Project D
Project C
Project D
Project E
Project F
Project G
What is the firm's optimal capital budget? Round your answer to the nearest dollar
F
IRR
13.5%
13.8
9.3
9.2
8.7
8.2
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 8.9%. The company believes that it will exhaust its retained earnings at $2,500,000 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: Size $ 640,000 1,040,000 1,000,000 1,180,000 470,000 640,000 G 650,000 8.3 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? beled Project A B Select Seled Selec C D t Project A Project D Project C Project D Project E Project F Project G What is the firm's optimal capital budget? Round your answer to the nearest dollar F IRR 13.5% 13.8 9.3 9.2 8.7 8.2
Expert Solution
steps

Step by step

Solved in 4 steps with 2 images

Blurred answer
Knowledge Booster
Cost of Capital
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education