Vang Enterprises, which is debt-free and finances only with equity from retained earnings, is considering 7 equal-sized capital budgeting projects. Its CFO hired you to assist in deciding whether none, some, or all of the projects should be accepted. You have the following information: rRF= 4.50%; RPM = 5.50%; and b = 0.93. The company adds or subtracts a specified percentage to the corporate WACC when it evaluates projects that have above- or below-average risk. Data on the 7 projects are shown below. If these are the only projects under consideration, how large should the capital budget be? Project Risk Risk Factor Expected Return Cost (Millions)
1 Very low -2.00% 7.60% $25.00
2 Low -1.00% 9.15% $25.00
3 Average 0.00% 10.10% $25.00
4 High 1.00% 10.40% $25.00
5 Very high 2.00% 10.80% $25.00
6 Very high 2.00% 10.90% $25.00
7 Very high 2.00% 13.00% $25.00

a. $ 125
b. $ 100
c. $ 25
d. $50
e. $75