Hi,
I do get the entire concept but I was hoping that somebody could explain the relationship of IRR and New Capital Raised in the Optimal Capital Budget chart.
The curve of the investment opportunity schedule is downward sloping thus high IRR goes together with little new capital and low IRR with a lot of new capital. I think this only makes sense if the new capital is not understood as amount for each project e.g. larger amounts are raised for lower IRR and vice versa. Because that wouldn’t make sense, right? So, does that mean additional capital will be raised for ever falling IRR because opportunities become scarce? Not sure if I understand it correctly.
Thanks!