CORRECT ANSWER B. MASON SHOULD INVEST IN ALL PROJECTS THAT HAVE...

188.

Correct answer b. Mason should invest in all projects that have an IRR greater than the cost of

capital. In this case, that means A + B + C = $200k + $350k + $570k = $1,120,000. This will

be financed 40% debt and 60% equity, or $1,120,000 x 60% = $672,000 equity. Since the $1

million is available internally, $1,000,000 – $672,000 = $328,000 will not be need for projects,

$328,000 can be paid as dividends under the residual dividend policy.