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19. Problem 10.19 (Adjusting Cost of Capital for Risk)

eBook Ziege Systems is considering the following independent projects for the coming year: Project Required Investment Rate of Return Risk A $4 million 14.00% High B 5 million 11.50 High C 3 million 9.50 Low D 2 million 9.50 Average E 6 million 12.50 High F 5 million 12.50 Average G 6 million 7.50 Low H 3 million 12.00 Low Ziege's WACC is 10.00%, but it adjusts for risk by adding 2% to the WACC for high-risk projects and subtracting 2% for low-risk projects. Which projects should Ziege accept if it faces no capital constraints? 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 projects should 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 be the dollar size of its capital budget? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places. $ million Suppose Ziege can raise additional funds beyond the $13 million, but each new increment (or partial increment) of $5 million 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? 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? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places. $ million

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