Suppose that Trump goes through with his promise and builds a wall between the U.S. and Mexico for a cost of 300. Suppose also your firm is considering a major capital project and the IRR (internal rate of return) on this project is 15%. Your firms cost of capital is (r+6%) where the 6% is the appropriate risk premium for your firm.

QUESTIONS

What is the new equilibrium r in the model after the 300 expenditure for the wall? Show how you arrived at your answer.

Should your firm undertake this capital project? Why or why not?