Questions: Ajax can raise funds with the following marginal costs. Calculate the cumulative funds raised to complete the following table. Block of Funds ( Million) Cost of Capital (%) Cumulative Funds Raised ( Million) --- --- --- First 250 14.0 250 Next 250 15.5 500 Next 100 16.0 600 Next 250 16.5 Next 200 18.0 Next 200 21.0 What is the optimal capital budget (in millions) for Ajax? 900 550 1,300 1,000

Solution Steps

To calculate the cumulative funds raised, we need to add the block of funds for each row to the cumulative funds raised from the previous row. We start with the given cumulative funds and continue adding the block of funds for each subsequent row. The optimal capital budget is the total of all cumulative funds raised.

We start with the initial cumulative funds raised for the first three blocks:

• For the first block: \( 250 \) million
• For the second block: \( 250 + 250 = 500 \) million
• For the third block: \( 500 + 100 = 600 \) million

Next, we continue calculating the cumulative funds for the remaining blocks:

• For the fourth block: \( 600 + 250 = 850 \) million
• For the fifth block: \( 850 + 200 = 1050 \) million
• For the sixth block: \( 1050 + 200 = 1250 \) million

The optimal capital budget is the total cumulative funds raised after all blocks have been accounted for, which is \( 1250 \) million.

Final Answer