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15.  Problem 10.19 - Adjusting Cost of Capital forRisk

Click here to read the eBook: Adjusting the Cost of Capital forRisk ADJUSTING COST OF CAPITAL FOR RISK Ziege Systems is considering the following independent projectsfor the coming year: Project Required Investment Rate of Return Risk A $4 million 10.75% High B 5 million 13.25 High C 3 million 8.75 Low D 2 million 8.5 Average E 6 million 11.75 High F 5 million 11.75 Average G 6 million 6.5 Low H 3 million 10.25 Low Ziege's WACC is 9.25%, but it adjusts for risk by adding 2% tothe WACC for high-risk projects and subtracting 2% for low-riskprojects. Which projects should Ziege accept if it faces no capitalconstraints? Project A -Select-AcceptRejectItem 1 Project B -Select-AcceptRejectItem 2 Project C -Select-AcceptRejectItem 3 Project D -Select-AcceptRejectItem 4 Project E -Select-AcceptRejectItem 5 Project F -Select-AcceptRejectItem 6 Project G -Select-AcceptRejectItem 7 Project H -Select-AcceptRejectItem 8 If Ziege can only invest a total of $13 million, which projectsshould it accept? Project A -Select-AcceptRejectItem 9 Project B -Select-AcceptRejectItem 10 Project C -Select-AcceptRejectItem 11 Project D -Select-AcceptRejectItem 12 Project E -Select-AcceptRejectItem 13 Project F -Select-AcceptRejectItem 14 Project G -Select-AcceptRejectItem 15 Project H -Select-AcceptRejectItem 16 If Ziege can only invest a total of $13 million, what would bethe dollar size of its capital budget? Round your answer to twodecimal places. Enter your answer in millions. For example, ananswer of $10,550,000 should be entered as 10.55. $ ? million Suppose Ziege can raise additional funds beyond the $13 million,but each new increment (or partial increment) of $5 million of newcapital will cause the WACC to increase by 1%. Assuming that Ziegeuses the same method of risk adjustment, which projects should itnow accept? Project A -Select-AcceptRejectItem 18 Project B -Select-AcceptRejectItem 19 Project C -Select-AcceptRejectItem 20 Project D -Select-AcceptRejectItem 21 Project E -Select-AcceptRejectItem 22 Project F -Select-AcceptRejectItem 23 Project G -Select-AcceptRejectItem 24 Project H -Select-AcceptRejectItem 25 What would be the dollar size of its capital budget? Round youranswer to two decimal places. Enter your answer in millions. Forexample, an answer of $10,550,000 should be entered as 10.55. $ ? million