Ike's Corporation considers its optimal structure to be 40 percent debt and 60 percent common stock.Ike can borrow unlimited amounts at 10 percent. The common stock can be issued with a required return of 15%. Ike has a tax rate of 30 percent.

Ike is considering four investment proposals:

Expected Level ofInvestment

Project Return RiskRequired

A15%High$ 20,000,000

B8%Low$ 5,000,000

C17%High$25,000,000

D12%Average$ 10,000,000

When Ike evaluates a project, they consider the level of risk.If the risk level is high, Ike adds a premium of three percent to the WACC.If the risk level is low, Ike subtracts one percent.

a)Determine Ike weighted average cost of capital (WACC).

b)Determine Ike optimal capital budget.