Ziege Systems Is Considering The Following

Question

Ziege Systems is considering the following independent projects for the coming year: Project …

Ziege Systems is considering the following independent projects
for the coming year:

Project Required
Investment
Rate of
Return
Risk
A $4 million 12.25% High
B 5 million 14.75 High
C 3 million 10.25 Low
D 2 million 10.25 Average
E 6 million 13.25 High
F 5 million 13.25 Average
G 6 million 8.25 Low
H 3 million 12.75 Low

Ziege's WACC is 10.75%, but it adjusts for risk by adding 2% to
the WACC for high-risk projects and subtracting 2% for low-risk
projects.

  1. Which projects should Ziege accept if it faces no capital
    constraints?

    Project A -Select-AcceptRejectItem 1
    Project B -Select-AcceptRejectItem 2
    Project C -Select-AcceptRejectItem 3
    Project D -Select-AcceptRejectItem 4
    Project E -Select-AcceptRejectItem 5
    Project F -Select-AcceptRejectItem 6
    Project G -Select-AcceptRejectItem 7
    Project H -Select-AcceptRejectItem 8
  2. If Ziege can only invest a total of $13 million, which projects
    should it accept?

    Project A -Select-AcceptRejectItem 9
    Project B -Select-AcceptRejectItem 10
    Project C -Select-AcceptRejectItem 11
    Project D -Select-AcceptRejectItem 12
    Project E -Select-AcceptRejectItem 13
    Project F -Select-AcceptRejectItem 14
    Project G -Select-AcceptRejectItem 15
    Project H -Select-AcceptRejectItem 16

    If Ziege can only invest a total of $13 million, what would be
    the dollar size of its capital budget? Round your answer to two
    decimal places. Enter your answer in millions. For example, an
    answer of $10,550,000 should be entered as 10.55.

    $    million

  3. Suppose Ziege can raise additional funds beyond the $13 million,
    but each new increment (or partial increment) of $5 million of new
    capital will cause the WACC to increase by 1%. Assuming that Ziege
    uses the same method of risk adjustment, which projects should it
    now accept?

    Project A -Select-AcceptRejectItem 18
    Project B -Select-AcceptRejectItem 19
    Project C -Select-AcceptRejectItem 20
    Project D -Select-AcceptRejectItem 21
    Project E -Select-AcceptRejectItem 22
    Project F -Select-AcceptRejectItem 23
    Project G -Select-AcceptRejectItem 24
    Project H -Select-AcceptRejectItem 25

    What would be the dollar size of its capital budget? Round your
    answer to two decimal places. Enter your answer in millions. For
    example, an answer of $10,550,000 should be entered as 10.55.

    $    million

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