(Answered) The managers of united medtronics are evaluating the

Finance

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.)

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