Management of florida phosphate industries

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The management of Florida Phosphate Industries (FPI) is planning next year's capital budget. The company's earnings and dividends are growing at a constant rate of 5 percent. The last dividend, D0, was $0.90; and the current equilibrium stock price is $7.73. FPI can raise new debt at a 14 percent before-tax cost. FPI is at its optimal capital structure, which is 40 percent debt and 60 percent equity, and the firm's marginal tax rate is 40 percent. FPI has the following independent, indivisible, and equally risky investment opportunities:

Project              Cost                  Rate of Return

A                      $15,000                     17%

B                      15,000                       16

C                      12,000                       15

D                      20,000                       13

What is FPI's optimal capital budget?

Reference no: EM132157845

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