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What is the optimal capital budget

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Question 1: Capital corporations has a target capital structure of 40 percent debt and 60 percent equity, is evaluating an expansion project with an 8.5 percent IRR. The project cost R6 million, and any portions of it can be purchased. The firm expects to retain 4.8 million in retained earnings this year. It can raise up to 2 million in new debt, rd=6%:all debt above 2 million will have rd=8 %, rs= 11%, and re=5 14% for any number of new ordinary shares that are issued. If the firm marginal tax rate is 35 percent, what is its optimal capital budget?

Reference no: EM132494247

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