Company optimal capital budget for the upcoming year


Problem: Managers are trying to determine the company's optimal capital budget for the upcoming year. The company is considering the following projects:

Project    Size    Rate of Return    Risk
A    $ 200,000         16%             High
B       500,000         14             Average
C       400,000         12                Low
D       300,000         11                High
E       100,000          10             Average
F        200,000         10                Low
G       400,000          7                 Low

The company estimates that its WACC is 11 percent. All projects are independent. The company adjusts for risk by adding 2 percentage points to the WACC for high-risk projects and subtracting 2 percentage points from the WACC for low-risk projects. Which of the projects will the company accept?

Solution Preview :

Prepared by a verified Expert
Finance Basics: Company optimal capital budget for the upcoming year
Reference No:- TGS02051596

Now Priced at $20 (50% Discount)

Recommended (94%)

Rated (4.6/5)

2015 ©TutorsGlobe All rights reserved. TutorsGlobe Rated 4.8/5 based on 34139 reviews.