In: Finance
The use of the overall firm’s weighted average cost of capital
(WACC or RWACC) in discounting projects of different
risk levels results in the _______________________.
A) rejection of too many high-risk projects
B) acceptance of too many low-risk projects
C) acceptance of too many high-risk projects and rejection of too
many low-risk projects
D) acceptance of too many low-risk projects and rejection of too
many high-risk projects
correct answer is option - C) ) acceptance of too many high-risk projects and rejection of too many low-risk projects
if the firm do not adjust the WACC with the adjusted risk it will start acceptancing too many high-risk projects and rejecting too many low-risk projects