1) In terms of Figure 13-5 what will happen to IRR if interest rates went up?

2) In terms of Figure 13-5 where will the new equilibrium be? More investment or less investment?

3) How would an event such as the pandemic crisis of 2020, where interest rates for many corporate borrowers fell very low, affect the size of a firms capital budget? Of course, this is not in the book. You have to think about it and apply the terminology of our chapter to this issue.

FIGURE 13.5 Optimal Capital Budget: Marginal IRR = Marginal WACC (dollars in millic B D E F G H WACC & IRR 30% 25% 20% WACC 15% 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 10% IRR 5% 0% $100 $600 $1,100 $1,600 $2,100 Capital Budget