Refer to Problem 12-19. Management now decides to incorporate project risk differentials into the analysis. The new policy is to add 2 percentage points to the cost of capital of those projects significantly riskier than average and to subtract 2 percentage points from the cost of capital of those that are substantially less risky than average. Management judges Project A to be of high risk, Projects C and D to be of average risk, and Project B to be of low risk. None of the projects is divisible. What is the optimal capital budget after adjustment for project risk?

  • CreatedNovember 24, 2014
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