A firm that uses its WACC as a cutoff without considering project risk tends to become less risky over time.

Name: A firm that uses its WACC as a cutoff without considering project risk tends to become less risky over time.
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Question

Quizplus · Accepted Answer

Using WACC as a cutoff rate for all projects, regardless of their individual risk levels, can lead to mispricing of risk and potentially accepting projects that are riskier than the firm's average project, thus potentially increasing the firm's overall risk over time.

A Firm That Uses Its WACC as a Cutoff Without