Question
Ziege Systems is considering the following independent projects for the coming year: Project …
Solutions
Expert Solution
Risk Project Required investment (S) Rate of return Risk Adjusted WACC (%) Reject if Net Profit ROR*WACC (ROR-WACC) Otherwise Accept Reject Accept Accept Reject Accept Accept Reject Accept 4 million 5 million 3 million 2 million 6 million 5 million 6 million 3 million 12.25 14.75 10.25 10.25 13.25 13.25 8.25 12.75 12.75 12.75 8.75 10.75 12.75 10.75 8.75 8.75 Low Average 0.5 Average Low Low 2.5 Ziege should accept Project: B, C, E, F and H. Ziege has total budget = $13 million so, project H. F and B should be accepted because project H. F and B has higher net profits than Project C and E Composition of investment of Project H, F and B is 3 million 5 million 5 million $13 million Hence, Size of Capital Budget- $13 million.