4. Problem 12.05 (Optimal Capital Budget)

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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 10.5%. The company believes that it will exhaust its retained earnings at $2,300,000 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:

Project	Size			IRR
A		$ 690,000		14.4	%
B		1,030,000		13.6
C		1,040,000		10.1
D		1,180,000		10.2
E		520,000		10.6
F		690,000		11.0
G		720,000		9.8

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?

Project A	-Select-acceptdon't acceptItem 1
Project B	-Select-acceptdon't acceptItem 2
Project C	-Select-acceptdon't acceptItem 3
Project D	-Select-acceptdon't acceptItem 4
Project E	-Select-acceptdon't acceptItem 5
Project F	-Select-acceptdon't acceptItem 6
Project G	-Select-acceptdon't acceptItem 7

What is the firm's optimal capital budget? Round your answer to the nearest dollar.

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