Problem 1. Your company's overall weighted average required rate of return is 10%. Its yogurt division is riskier than average, it's fresh produce division has average risk, and its institutional foods division has below-average risk. Your company adjusts for both divisional and project risk by adding or subtracting 2 percentage points. Thus, the maximum adjustment is 4 percentage points. What is the risk-adjusted required rate of return for a low-risk project in the yogurt division?
Problem 2. Your company has a capital structure that consists of 20% equity and 80% debt. The company expects to report $3 Million in net income this year, and 60% of the net income will be paid out as dividends. How large can the firm's capital budget be this year without it having to issue any new common stock?