In terms of Figure 13.5, how would an event such as the credit crisis of 2008, where interest rates for many corporate borrowers climbed quite high, affect the size of the capital budget?

Figure 13.5

Transcribed Image Text:

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