Question $4$

$[15$ Marks$]$

Ziege Systems is considering the following independent projects for the coming year

Ziege's WACC is $10\%,$ but it adjusts for risk by adding $2\%$ to the WACC for high$-$risk projects and

subtracting $2\%$ for low$-$risk projects.

$4\mathrm{.}1.$ Which projects should Ziege accept if it faces no capital constraints?

If Ziege can only invest a total of R$13$ million, which projects should it accept, and what would

be the Rand size of its capital budget?

$4\mathrm{.}3.$ Suppose Ziege can raise additional funds beyond the R$13$ million, but each new increment $($or

partial increment$)$ of R$5$ millions of new capital will cause the WACC to increase by $1\%.$ Assuming

that Ziege uses the same method of risk adjustment, which projects should it now accept, and

what would be the Rand size of its capital budget?