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4. Problem 12.05 (Optimal Capital Budget)

eBook Marble Construction estimates that its WACC is 10% if equity comes from retained earnings. However, if the company issues new stock to raise new equity, it estimates that its WACC will rise to 10.5%. The company believes that it will exhaust its retained earnings at $2,300,000 of capital due to the number of highly profitable projects available to the firm and its limited earnings. The company is considering the following seven investment projects: Project Size IRR A $ 690,000 14.4 % B 1,030,000 13.6 C 1,040,000 10.1 D 1,180,000 10.2 E 520,000 10.6 F 690,000 11.0 G 720,000 9.8 Assume that each of these projects is independent and that each is just as risky as the firm's existing assets. Which set of projects should be accepted? Project A -Select-acceptdon't acceptItem 1 Project B -Select-acceptdon't acceptItem 2 Project C -Select-acceptdon't acceptItem 3 Project D -Select-acceptdon't acceptItem 4 Project E -Select-acceptdon't acceptItem 5 Project F -Select-acceptdon't acceptItem 6 Project G -Select-acceptdon't acceptItem 7 What is the firm's optimal capital budget? Round your answer to the nearest dollar. $

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