# Economics

posted by
**Damian**
.

Use the concepts of marginal cost and marginal revenue to derive an optimal capital budget for Company X, which has identified 7 possible investment projects and determined its cost of capital as shown below.

Table A: Alternative Projects, Required Investments, and Expected Rate of Return

Project Investment Required in Millions of Dollars Expected Rate of Return on Investment

A 150 12%

B 300 15%

C 125 10%

D 75 16%

E 50 20%

F 500 14%

G 250 18%

Table B: Cost of Capital by Amount Raised

Block of Funds

(in Millions) Amount of Funds

in Block Cost of Capital for Block

First Block of Funds $500 10%

Second Block of Funds $400 11%

Third Block of Funds $300 12%

Fourth Block of Funds $200 13%

Fifth Block of Funds $100 14%

Sixth Block of Funds $100 15%