Marble Construction estimates that its WACC is 10% if equity comes from retained earnings. However, if the company issues new stock to raise new equity, it estimates that its WACC will rise to 10.8%. The company believes that it will exhaust its retained earnings at $2,500,000 of capital due to the number of highly profitable projects available to the firm and its limited earnings. The company is considering the following seven investment projects:

Assume that each of these projects is independent and that each is just as risky as the firm€™s existing assets. Which set of projects should be accepted, and what is the firm€™s optimal capital budget?

Project Size 650,000 1,050,000 1,000,000 1,200,000 500,000 650,000 700,000 IRR 14.0% 13.5 11.2 11.0 10.7 10.3 10.2