The firm\'s corporate cost of capital is 14 percent. project cost irr a $15000 1

Question

The firm's corporate cost of capital is 14 percent. project cost irr a $15000 17% b $15000 16% c $12000 15% d $20000 13% a. What is the firm's optimal capital budget? b. Now, suppose Medtronic's managers want to consider differential risk in the capital budgeting process. Project A has average risk, B has below-average risk, C has above-average risk, and D has average risk. What is the firm's optimal capital budget when differential risk is considered? (Hint: The firm's managers lower the IRR of high-risk projects by 3 percentage points and raise the IRR of low-risk projects by the same amount.)

Explanation / Answer

A All those projects where IRR> Cost of capital so A, B, C.
$42,000.

B. All those projects where adjusted IRR>Cost of capital so A and B only (C gets excluded because its risk adjusted IRR is 12.
$30,000

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.