Question: Project risk analysis -B PS5 2Problem Set 5 Chapter 12Project Risk Analysis Assigned Problem 5 The managers of Uaited Medtronies are evaluatiog the followiag tour

Project risk analysis -B

PS5 2Problem Set 5 Chapter 12Project Risk Analysis Assigned Problem 5 The managers of Uaited Medtronies are evaluatiog the followiag tour projects for the coming 7budget period. The firm's corporate cost of capital Is 14 percent. Project Cost IRR S15,000 $15,000 $12,000 520,000 17% 16% 15% 13% 10 12 13 a. Assuming that all four projects have average risk, what is the firm's optimal capital budget? b. Now, suppose Medtronic's managers want to consider differential risk in the capital budgeting proces. Preject A has average risk, B has below-average risk, C has above-average risk, and D has average risk. What is the firm's optimal capital budget when differential risk is considered? (Hint: The firm's managers lower the IRR of high-risk projects by 3 percentage points and raise the IRR of low-risk projects by the same amount. ANSWER Assigned Prc Assi

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