Marginal cost and marginal revenue, Finance Basics

Use the concepts of marginal cost and marginal revenue to derive an optimal capital budget for Company X, which has identified 7 possible investment projects and determined its cost of capital as shown below.

Table A: Alternative Projects, Required Investments, and Expected Rate of Return

Project

Investment Required in Millions of Dollars

Expected Rate of Return on Investment

A

150

12%

B

300

15%

C

125

10%

D

75

16%

E

50

20%

F

500

14%

G

250

18%

 Table B: Cost of Capital by Amount Raised

Block of Funds
 (in Millions)

Amount of Funds
in Block

Cost of Capital for Block

First Block of Funds

$500

10%

Second Block of Funds

$400

11%

Third Block of Funds

$300

12%

Fourth Block of Funds

$200

13%

Fifth Block of Funds

$100

14%

Sixth Block of Funds

$100

15%

Posted Date: 4/1/2013 5:21:47 AM | Location : United States







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