Question: 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,
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:
| Project | Size | IRR | |||
| A | $ 640,000 | 14.5 | % | ||
| B | 1,040,000 | 13.2 | |||
| C | 1,050,000 | 11.1 | |||
| D | 1,180,000 | 10.4 | |||
| E | 480,000 | 10.6 | |||
| F | 640,000 | 10.2 | |||
| G | 750,000 | 11.5 | |||
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 accept |
| Project B | -Select-acceptdon't accept |
| Project C | -Select-acceptdon't accept |
| Project D | -Select-acceptdon't accept |
| Project E | -Select-acceptdon't accept |
| Project F | -Select-acceptdon't accept |
| Project G | -Select-acceptdon't accept |
What is the firm's optimal capital budget? Round your answer to the nearest dollar.
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