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Author Question: Durst Enterprises, which is debt-free and finances only with equity from retained earnings, is ... (Read 84 times)

blkth103

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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:

– rRF= 5%; RPM= 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?


◦

$30,000


◦

$60,000


◦

$90,000


◦

$120,000

Financial Management: Theory and Practice ¦ Brigham, Ehrhardt, Gessaroli, Nason ¦ 4th Edition
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Marked as best answer by blkth103 on Aug 7, 2023

dianagarcia

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Reply #1 on: Aug 7, 2023
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blkth103

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Reply 2 on: Aug 7, 2023
Excellent

adf223

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Reply 3 on: Yesterday
Great answer, keep it coming :)

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