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4 The managers of United Medtronics are evaluating the following four projects for the coming budget period. The firm's corporate cost of capital is...
15.4 The managers of United Medtronics are evaluating the following fourprojects for the coming budget period. The firm’s corporate cost ofcapital is 14 percent.Project Cost IRRA $15,000 17%B 15,000 16C 12,000 15D 20,000 13a. What is the firm’s optimal capital budget?b. Now, suppose Medtronics’s managers want to consider differentialrisk in the capital budgeting process. Project A has average risk, Bhas below-average risk, C has above-average risk, and D has averagerisk. What is the firm’s optimal capital budget when differentialrisk is considered? (Hint: The firm’s managers lower the IRR ofhigh-risk projects by 3 percentage points and raise the IRR oflow-risk projects by the same amount.)
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