The firm\'s corporate cost of capital is 14 percent. project cost irr a $20000 1

Question

The firm's corporate cost of capital is 14 percent. project cost irr a $20000 17% b $15000 16% c $12000 15% d $18000 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.) c. Return to the original assumption that all projects have average risk. If United Medtronics are only approved for $30,000 towards their project budget, which project or projects would you accept? (Hint: Any money not used for a project will not receive any return).

Explanation / Answer

Not all Chartered Accountants will be able to answer this question but a Chartered Accountant with their CBV should be able to . . . http://www.investopedia.com/terms/w/wacc

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