Firm A has 11 equally risky capital budgeting projects, each costing $29.608 million and each having an expected rate of return of 8.25%. Firm A's retained earnings breakpoint is $296.08 million. The firm's WACC using retained earnings is 8.0% but increases to 8.5% if new equity must be issued. The company invests in projects where the expected return exceeds the cost of capital. How much capital should Firm A raise and invest?

How much capital should Firm A raise and invest?

$296.08 million should be raised and invested in projects.

Explanation:

WACC = 8% when A's retained earnings breakeven point = $296.08 million

Expected rate of return = 8.25%

WACC is less than expected rate of return.

Therefore, WACC is less than expected rate of return, which is beneficial, since cost of capital is less than expected rate of return.

therefore, $296.08 million should be raised.

If the firm A raises, more than $296.08 million, WACC would be increasing to 8.5%, this is greater than the expected rate of return i.e. 8.25%.

Hence raising amount more than $296.08 million will not be beneficial.

Hence it is clear that amount which should be raised and invested =$296.08 million.

Investment required in one project=$29.608 million.

Number of projects which can be started =$296.08/$29.608  =10 projects

All are equally risky therefore it does not matter which project should be left.

Hence, $296.08 million should be raised and invested in projects.

both are integral parts of a corporate balance sheet. the cash flow statement, or statement of cash flows, measures the sources of a company's cash and its uses of cash over a specific time period. the income statement measures a company's financial performance, such as revenues, expenses, profits or losses over a specific time period (in fact, it's sometimes called a statement of financial performance).

a cash flow statement shows exactly how much money a company has received and how much it has spent, traditionally over a period of one month. it captures the current operating results and changes on the balance sheet, such as increases or decreases in accounts receivable or accounts payable, and does not include noncash accounting items such as depreciation and amortization. the cash flow generally comes from revenue received as a result of business activity, but it may be augmented by funds available as a result of credit. a cash flow statement is used to determine the short-term viability and liquidity of a company, specifically how well it is positioned to pay its bills and vendors.

answer; i believe the correct answer is (4.0);