Use the following info for 15 and 16. . The firm has the following projects avai

ID: 2625012 • Letter: U

Question

Use the following info for 15 and 16. . The firm has the following projects available to them:

Project IRR Cost NPV at 9%

A 18% $4,000,000 1,000,000

B 16% $1,000,000 200,000

C 14% $5,000,000 900,000

D 12% $2,000,000 400,000

E 10% $3,000,000 100,000

15. Which set of projects would maximize shareholder wealth if they have a capital budget of $7,000,000?

16. Suppose it can raise the following amounts at different costs of capital. Which set of projects would maximize shareholder wealth?

WACC Amount Raised

9% $10,000,000

11% $12,000,000

13% $15,000,000

18. Which of the following is an example of a timing option?

a. A company has the option to invest in a project today or to wait a year.

b. A company has the option to back out of a project that turns out to be unproductive.

c. A company pays a higher cost today in order to be able to reconfigure the project

15. c

16.13% $15,000,000

18.a. A company has the option to invest in a project today or to wait a year.

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