In terms of the figure attached:

1. What will happen to WACC if interest rates went up?

2. What will happen to IRR if interest rates went up?

3. Where will the new equilibrium be? More investment or less investment?

4. How would an event sure as the credit crisis of 2008, where interest rates for many corporate borrowers climbed quite high, affect the size of a firms capital budget?

Thank you!

6 WACC & IRR 30% WACC $100 $600 $1,100 $1,600 $2,100 Capital Budget 6 WACC & IRR 30% WACC $100 $600 $1,100 $1,600 $2,100 Capital Budget