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What is the firms optimal capital budget

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The managers of United Medtronics are evaluating the following four projects for the coming budget period. The firms corporate cost of capital is 14 percent.Project Cost IRRA $15,000 17%B 15,000 16C 12,000 15D 20,000 13

a. What is the firms optimal capital budget?b. Now, suppose Medtronics 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.)

Reference no: EM13502293

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