Start drawing the projects on the graph. It already has your Marginal Cost of Capital schedule on it. You're adding the Investment Opportunity Schedule. You graph each project, from best to worst, starting at the top left. Use the IRR as the Y axis and the Capital Requirement as the X axis. Your first line will be Project F at 29% for $10 million (halfway to the first vertical line).

-Keep drawing until you cross the MCC schedule (red line).

5) Your assignment is: which projects are you approving (which ones are above the red line), what's your capital budget for the year (add the Capital Requirements for your approved projects), and what is your WACC for the year (the percentage on the red line wherever you cross it)?

30 MCC WACC = 28% 25 Answers WACC 22% Which projects Will you fund? 20 WACC = 17% Fercent WACC - 13% What is 2021's capital budget? $ 10 WACC - 10% WACC8% 2021 marginal cost of capital? % 5 $140 $120 $180 $160 $20 $40 $60 $80 $100 Capital (Smillions) IRR: Project A Capital Required: Year 0 Year 1 Year 2 ($8,500,000) $1,250,000 $1,575,000 $10 million Year 3 Year 4 $2,000,000 $3,000,000 Year 5 $2,500,000 Year 6 $791,000 Year 6 $0 Project B Capital Required: $25 million IRR: Year o Year 1 Year 2 Year 3 Year 4 Year 5 ($23,000,000) $56,000 $2,450,000 $13,300,000 $11,000,000 $8,000,000 Project C Capital Required: $30 million IRR: Year o Year 1 Year 2 Year 3 Year 4 Year 5 ($10,000,000) ($15,000,000) ($300,000) $8,500,000 $35,000,000 $450,000 Year 6 $372,000 Project D Capital Required: Year 0 Year 1 Year 2 ($19,800,000) $6,500,000 $7,000,000 $20 million Year 3 Year 4 $7,000,000 $7,000,000 IRR: Year 5 $7,000,000 Year 6 $7,000,000 IRR: Project E Capital Required: Year o Year 1 Year 2 ($9,000,000) ($9,000,000) $430,000 $20 million Year 3 Year 4 $1,000,000 $2,000,000 Year 5 $5,000,000 Year 6 $30,000,000 Project F Year o ($9,500,000) Year 1 $0 Capital Required: Year 2 $150,000 $10 million Year 3 Year 4 $1,000,000 $5,000,000 IRR: Year 5 Year 6 $10,000,000 $20,000,000 IRR: Project G Capital Required: $35 million Year 0 Year 1 Year 2 Year 3 Year 4 ($1,234,567) ($7,654,321) ($14,824,834) ($7,777777) $33,333,333 Year 5 $5,555,555 Year 6 $1,111,111 $50 million IRR: Project H Year o ($48,530,000) Year 1 $0 Capital Required: Year 2 $0 Year 3 $o Year 4 $0 Year 5 $0 Year 6 $160,000,000 IRR: Project 1 Capital Required: Year o Year 1 Year 2 (51,000,000) ($12,000,000) $2,000,000 $15 million Year 3 Year 4 $4,000,000 $9,000,000 Year 5 $4,000,000 Year 6 $365,000 IRR: Project) Capital Required: Year 0 Year 1 Year 2 ($20,000,000) $10,000,000 SO $20 million Year 3 Year 4 $10,000,000 $0 Year 5 $10,000,000 Year 6 S4,180,000 30 MCC WACC = 28% 25 Answers WACC 22% Which projects Will you fund? 20 WACC = 17% Fercent WACC - 13% What is 2021's capital budget? $ 10 WACC - 10% WACC8% 2021 marginal cost of capital? % 5 $140 $120 $180 $160 $20 $40 $60 $80 $100 Capital (Smillions) IRR: Project A Capital Required: Year 0 Year 1 Year 2 ($8,500,000) $1,250,000 $1,575,000 $10 million Year 3 Year 4 $2,000,000 $3,000,000 Year 5 $2,500,000 Year 6 $791,000 Year 6 $0 Project B Capital Required: $25 million IRR: Year o Year 1 Year 2 Year 3 Year 4 Year 5 ($23,000,000) $56,000 $2,450,000 $13,300,000 $11,000,000 $8,000,000 Project C Capital Required: $30 million IRR: Year o Year 1 Year 2 Year 3 Year 4 Year 5 ($10,000,000) ($15,000,000) ($300,000) $8,500,000 $35,000,000 $450,000 Year 6 $372,000 Project D Capital Required: Year 0 Year 1 Year 2 ($19,800,000) $6,500,000 $7,000,000 $20 million Year 3 Year 4 $7,000,000 $7,000,000 IRR: Year 5 $7,000,000 Year 6 $7,000,000 IRR: Project E Capital Required: Year o Year 1 Year 2 ($9,000,000) ($9,000,000) $430,000 $20 million Year 3 Year 4 $1,000,000 $2,000,000 Year 5 $5,000,000 Year 6 $30,000,000 Project F Year o ($9,500,000) Year 1 $0 Capital Required: Year 2 $150,000 $10 million Year 3 Year 4 $1,000,000 $5,000,000 IRR: Year 5 Year 6 $10,000,000 $20,000,000 IRR: Project G Capital Required: $35 million Year 0 Year 1 Year 2 Year 3 Year 4 ($1,234,567) ($7,654,321) ($14,824,834) ($7,777777) $33,333,333 Year 5 $5,555,555 Year 6 $1,111,111 $50 million IRR: Project H Year o ($48,530,000) Year 1 $0 Capital Required: Year 2 $0 Year 3 $o Year 4 $0 Year 5 $0 Year 6 $160,000,000 IRR: Project 1 Capital Required: Year o Year 1 Year 2 (51,000,000) ($12,000,000) $2,000,000 $15 million Year 3 Year 4 $4,000,000 $9,000,000 Year 5 $4,000,000 Year 6 $365,000 IRR: Project) Capital Required: Year 0 Year 1 Year 2 ($20,000,000) $10,000,000 SO $20 million Year 3 Year 4 $10,000,000 $0 Year 5 $10,000,000 Year 6 S4,180,000