The managers of United Medtronic are evaluating the following four projects for the coming budget period. The firms corporate cost of capital is 14 percent.
Project----Cost---------IRR
A----------$15,000----17%
B----------15,000------16
C-----------12,000-----15
D------------20,000-----13
a. What is the firm's optimal capital budget?
b. Now, suppose Medtronics managers want to consider differential risk in the capital budgeting process. Project A has average risk, B has below average risk, C has above average risk and D has avaerage risk. What is the firms optimal capital budget when differential risk is considered?