Author Question: Durst Enterprises, which is debt-free and finances only with equity from retained earnings, is ... (Read 54 times)

blkth103 · **on:** Aug 7, 2023

Durst Enterprises, which is debt-free and finances only with equity from retained earnings, is considering four large capital budgeting projects. Its CFO hired you to assist in deciding how many projects should be accepted. You have the following information:

– r_RF= 5%; RP_M= 6%; and b = 1.1.

– The company adds 4%, 2%, 0%, or –2% to the corporate WACC when it evaluates projects that differ in risk.

– Project A is in the –2% category, B is in the 0% group, C is in the +2% group, and D is in the +4% group.

– Each project has a cost of $30,000.

– The projects’ expected returns are as follows: A = 9.9%, B = 11.7%, C = 13.8%, and D = 15.9%. If these are the only projects under consideration, how large should Durst’s capital budget be?

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$30,000

◦

$60,000

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$90,000

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$120,000

dianagarcia · **Reply #1 on:** Aug 7, 2023

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