A company has a WACC1.5% for funding up to $4 million when retained earnings are used.
They also have a WACC2.7% for funding above $4 million when new equity is raised.
If they have the following independent investment opportunities, which projects should the company include in their budget? What is the company's optimal capital budget?
- Project A: Cost of $2 million; IRR 20%.
- Project B: Cost of $3 million; IRR 14%
- Project C: Cost of $4 million; IRR 13%