Business, 02.03.2020 22:53 justkevin1231

Vang Enterprises, which is debt-free and finances only with equity from retained earnings, is considering 7 equal sized capital budgeting projects. Its CFO hired you to assist in deciding whether none, some, or all of the projects should be accepted. You have the following information:
rRF = 4.50%; RPM = 5.50%; and b = 0.93.
The company adds or subtracts a specified percentage to the corporate WACC when it evaluates projects that have above- or below-average risk. Data on the 7 projects are shown below.
If these are the only projects under consideration, how large should the capital budget be?

Risk Expected Cost
Project Risk Factor Return (Millions)

1 Very low -2.00% 7.60% $25.0
2 Low -1.00% 9.15% $25.0
3 Average 0.00% 10.10% $25.0
4 High 1.00% 10.40% $25.0
5 Very high 2.00% 10.80% $25.0
6 Very high 2.00% 10.90% $25.0
7 Very high 2.00% 13.00% $25.0

a) $125 b) $100 c) $25 d) $50 e) $75

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