Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Production Budget
A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budge…
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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. $
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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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