The firm is planning next year's capital budget and projects its net income at $75,000,000 and its payout ratio is 40 percent. The following independent, indivisible and equally risky investment opportunities are available to the company. Firms will choose investment projects as long as a Project’s IRR > RRR, where the Required Rate of Return is determined by the AWCOC, which in this case is 11%.

Project                  IRR                 Initial Investment       

A                     17%                 $45 million

B                     15%                 $60 million

C                     13%                 $60 million

D                     10%                 $15 million

E                      9%                 $20 million

a. Which investment opportunities should Alpha take?

b. Does the firm have enough internal funds available? EXPLAIN.

c. Does the firm have an opportunity to use debt as an external source to finance recommended investments? Explain.

d. If so, demonstrate effect on capital structure.