Question

In: Finance

The use of the overall firm’s weighted average cost of capital (WACC or RWACC) in discounting...

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

Solutions

Expert Solution

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


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