Explore BrainMass

Explore BrainMass

    Optimal capital budget

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    SkyHigh Airlines has five possible investment projects for the coming year. Each project is indivisible. They are:
    Project A: $5 million investment / IRR: 22%
    Project B: $12 million investment / IRR: 16%
    Project C: $6 million investment / IRR: 18%
    Project D: $2 million investment / IRR: 14%
    Project E: $3 million investment / IRR: 12%

    SkyHigh's weighted marginal cost of capital schedule is 10 percent for up to $6 million of investment; 14 percent for between $6 million and $23 million of investment; and above $23 million the weighted cost of capital is 16 percent. The optimal capital budget is ________.

    a) $12 million
    b) $18 million
    c) $23 million
    d) $28 million
    e) $10 million

    © BrainMass Inc. brainmass.com June 3, 2020, 11:12 pm ad1c9bdddf

    Solution Preview

    We start with the projects with the highest IRR and match with the cost of capital. The cost of capital is ...

    Solution Summary

    The solution explains how to determine the amount of optimal capital budget