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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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