The Airlines have five possible Investment projects for the coming year. Each pr

Question

The Airlines have five possible Investment projects for the coming year. Each project is indivisible. They are

Project Investment (Million)    IRR
A                          $5             22%
B                          $12            16%
C                            $6             18%
D                            $2             14%
E                            $3             12%

The Airlines weighted marginal cost of capital schedule is 10 percent for up to $6 million of investment; 14 percent for between $6 million and $23 million of investment; and above $23 million the weighted cost of capital is 16 percent. The optimal capital budget is?

A) $12 million

B) $18 million

C) $23 million

D) $28 million

Explanation / Answer

c. $23 million

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