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Marble Construction estimates that its WACC is 10% if equity comes from retained earnings. However, if the company issues new

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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:
Marble Construction estimates that its WACC is 10% if equity

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?

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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

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Fundamentals of Financial Management

Fundamentals of Financial Management

ISBN: 978-0324597707

12th edition

Authors: Eugene F. Brigham, Joel F. Houston

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Question Posted: February 25, 2016 06:44:20
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