Question: Please explain how you got the answer and do it by step by step Thank you Vang Enterprises, which is debt-free and finances only with
Please explain how you got the answer and do it by step by step Thank you
Vang Enterprises, which is debt-free and finances only with equity from retained earnings, is considering 7 equal sized capital budgeting projects. Its CFO hired you to assist in deciding whether none, some, or all of the projects should be accepted. You have the following information: rRF = 4.50%; RPM = 5.50%; and b = 0.93. The company adds or subtracts a specified percentage to the corporate WACC when it evaluates projects that have above- or below-average risk. Data on the 7 projects are shown below. If these are the only projects under consideration, how large should the capital budget be?
| Risk | Expected | Cost | ||||
| Project | Risk | Factor | Return | (Millions) | ||
| 1 | Very low | -2.00% | 7.60% | $25.0 | ||
| 2 | Low | -1.00% | 9.15% | $25.0 | ||
| 3 | Average | 0.00% | 10.10% | $25.0 | ||
| 4 | High | 1.00% | 10.40% | $25.0 | ||
| 5 | Very high | 2.00% | 10.80% | $25.0 | ||
| 6 | Very high | 2.00% | 10.90% | $25.0 | ||
| 7 | Very high | 2.00% | 13.00% | $25.0 | ||
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