Question

Hampton Manufacturing estimates that its WACC is 12%. The company is considering the following seven investment projects: Project Size IRR $650,000 13.6% 13.1 В 1,050,000 12,5 1,050,000 C D. 1,200,000 12.3 600,000 E 12.2 F 600,000 11.6 650,000 11.5 a. Assume that each of these projects is independent and that each is just as risky as the firm's existing assets. Which set of projects should be accepted? -Select Project A -Select Project B -Select Project C Project D -Select Project E -Select- Project F -Select- Project G -Select- What is the firm's optimal capital budget? Write out your answer completely. For example, 13 million should be entered as 13,000,000. Round your answer to the nearest dollar. $

Answer 1

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projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Data Review View Add-Ins Formulas - 2x 11 A = = = V General File Home Insert Page Layout % Cut Calibri Ea Copy Paste Format Painter BIU - D Clipboard Font EM675 for A A Wrap Text Merge Merge & Center - Center SF $ % % , 4:0 .00 :.: Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Alignment Number Cells EG EH EI EI EK ELI EM I EN EO EP EO 675 676 677 678 679 680 681 HAMPTON 682 683 684 ACCEPT IF RETURN > WACC 685 686 687 688 689 690 691 ACCEPT THE FOLLOWING PROJECTS PROJECT SIZE 650000 1050000 1050000 1200000 600000 4550000 692 OPTIMAL CAPITAL BUDGET 4550000 693 H invest, EAA MI-np-ir_ REPLACEMENT S HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT BOND STEIN II I RRnpvbeta RATION PBP ARR ferences: JF17 OPTION TO WAIT BOU 130% Rea 0 ...B 199 * 10 ENG 28-11-2019

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Data Review View Add-Ins File Home Insert Page Layout Formulas - 2x % Cut Σ AutoSum : A Fill ZI TU Insert Delete Format E Copy Paste Format Painter Clipboard Conditional Format Formatting as Table Styles Cell Styles 2 Clear Sort & Filter Editing Find & Select Cells EM701 EG Calibri 11 A A = = = V Wrap Text General BIU - D A SF Merge Merge & Center - Center $ % % , 4:0 .00 :.: Font Alignment CD Number for EH EI EI EK - EL A & BARE MUTUALLY EXCLUSIVE PROJECT B IS TO BE SELECTED AS IT HAS HIGHER NPV ACCEPT THE FOLLOWING PROJECTS PROJECT SIZE EM EN EO EP EQ | 694 695 696 b 697 698 699 700 701 702 703 1050000 1050000 1200000 600000 3900000 704 OPTIMAL CAPITAL BUDGET 3900000 705 706 707 708 709 710 711 712 H invest, EAA MI-np-ir_ REPLACEMENT S HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT BOND STEIN II I RRnpvbeta RATION PBP ARR ferences: JF8 OPTION TO WAIT BOU 130% Rea 0 2. 9 * * O ENG 28-11-2019

X 2 E. Insert = Page Layout projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Data Review View Add-Ins File Home Formulas - 2x % Cut Σ AutoSum : A Calibri A = = = V 11 B- A A B I U SF Wrap Text General Merge Merge & Center - Center $ -% % CD Number 4:0 .00 . Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Fill 2 Clear Sort & Filter Editing Find & Select Alignment Cells Font fx E Copy Paste Format Painter Clipboard EH724 EG 706 707 EH ΕΙ EJ EK E L EM EN EO EP EQ PROJECT WACC 708 709 710 711 RISK HIGH AVERAGE AVERAGE AVERAGE AVERAGE LOW LOW 12% +2% 12.00% 12.00% 12.00% 12.00% 12%-2% 12%-2% WACC 14.00% 12.00% 12.00% 12.00% 12.00% 10.00% 10.00% RETURN ACCEPT/REJECT 13.60% REJECT 13.10% ACCEPT 12.50% ACCEPT 12.30% ACCEPT 12.20% ACCEPT 11.60% ACCEPT 11.50% ACCEPT 712 713 714 715 716 717 718 719 720 T mono 721 722 723 724 ACCEPT THE FOLLOWING PROJECTS PROJECT SIZE 1050000 1050000 1200000 600000 600000 650000 5150000 I RRnpvbeta RATION PBP ARR invest, EAA MI-np-ir_ REPLACEMENT S ferences: JF17 H HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT BOND STEIN II OPTION TO WAIT BOU 130% Rea 0 ... * * *ENG 28-11-2019

X 2 E. Insert = Page Layout projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Data Review View Add-Ins File Home Formulas - 2x % Cut Σ AutoSum : A Calibri A = = = V General 11 B- A A Fill Wrap Text Merge Merge & Center - Center ZI TU E Copy Paste Format Painter Clipboard B I U SF $ -% % 4:0 .00 . Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles 2 Clear Sort & Filter Editing Find & Select Font Alignment Number Cells EH733 EG EH EL E EK EL EM EN EO EP EQ 715 716 717 718 719 720 721 722 723 724 725 726 727 728 729 730 731 732 733 ACCEPT THE FOLLOWING PROJECTS PROJECT SIZE 1050000 1050000 1200000 600000 600000 650000 5150000 OPTIMAL CAPITAL BUDGET 5150000 H invest, EAA MI-np-ir_ REPLACEMENT S HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT BOND STEIN II I RRnpvbeta RATION PBP ARR ferences: JF17 OPTION TO WAIT BOU 130% Rea 0 ... * * *ENG 28-11-2019