Tapley Inc.'s current (target) capital structure has a target debt ratio (D/TA) of 60 percent.The firm can raise up to R5 million in new debt at a before-tax cost of 8 percent.If more debt is required, the initial cost will be 8.5 percent, and if more than R10 million of debt is required, the cost will be 9 percent.Net income for the previous year was R10 million, and it is expected to increase by 10 percent this year.The firm expects to maintain its dividend payout ratio of 40 percent on the 1 million shares of ordinary shares outstanding.If it must sell new ordinary shares, it would encounter a 10 percent flotation cost on the first R2 million, a 15 percent cost if more than R2 million but less than R4 million is needed, and a 20 percent cost if more than R4 million of new outside equity is required.Tapley's tax rate is 30 percent, and its current share price is R88 per share.If the firm has an unlimited number of projects which will earn a 10.25 percent return, what is the maximum capital budget that can be adopted without adversely affecting shareholder wealth?

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The Answer of Tapley Inc.'s current (target) capital structure has a target debt ratio (D/TA) of 60 percent.The firm can raise up to R5 million in new debt at a before-tax cost of 8 percent.If more debt is required, the initial cost will be 8.5 percent, and if more than R10 million of debt is required, the cost will be 9 percent.Net income for the previous year was R10 million, and it is expected to increase by 10 percent this year.The firm expects to maintain its dividend payout ratio of 40 percent on the 1 million shares of ordinary shares outstanding.If it must sell new ordinary shares, it would encounter a 10 percent flotation cost on the first R2 million, a 15 percent cost if more than R2 million but less than R4 million is needed, and a 20 percent cost if more than R4 million of new outside equity is required.Tapley's tax rate is 30 percent, and its current share price is R88 per share.If the firm has an unlimited number of projects which will earn a 10.25 percent return, what is the maximum capital budget that can be adopted without adversely affecting shareholder wealth?