The firm referred to in problem 2 has 3 projects available: One with a cost of $

Question

The firm referred to in problem 2 has 3 projects available: One with a cost of $4000 and an IRR of 18% one with a cost $3000 and an IRR of 20% and one with cost of $6000 and an IRR of 6% Do the following Compute the optimal capital budget. In other words how mu Ch capital must the firm raise in order to invest in all projects whose IRR exceeds the WACC? What projects be accepted? A potential has the following cash flows CFO = -$ 500, CF1 = $200 CF3 - $150 WACC = compute following A. Payback Period B.NPV C.IRR A project has a WACC of 8% and an initial cash outlay of $1000. The life of this projects 4 years and cash now are expected to be $400 per year compute the following payback period NPV IRR

Explanation / Answer

Projects whose IRR exceed the WACC are:

One with a cost of $4000 and an IRR of 18%;

One with a cost of $3000 and an IRR of 20%

Optimal capital budget = 4000+3000 = $7000

Projects that sould be accepted:

One with a cost of $4000 and an IRR of 18%;

One with a cost of $3000 and an IRR of 20%

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