1.) Explain how a change in interest rates in the economy would be expected to affect each component of the weighted average cost of capital?
2.) If you were analyzing a replacement project and suddenly learned that the old equipment could be sold for $1,000 rather than $400, would this new information make the replacement look better or worse? Explain.
A change in interest rates in the economy would affect the following components of the weighted average cost of capital:
1. Cost of debt - this is directly related to the changes in interest rates which means the higher the rate ...
WACC, capital budgeting and stock pricing is examined.