If they have the following independent investment

Question

A company has a WACC₁.5% for funding up to $4 million when retained earnings are used.

They also have a WACC₂.7% for funding above $4 million when new equity is raised.

If they have the following independent investment opportunities, which projects should the company include in their budget? What is the company's optimal capital budget?

• Project A:  Cost of $2 million; IRR 20%.
• Project B:  Cost of $3 million; IRR 14%
• Project C:  Cost of $4 million; IRR 13%