When a firm uses the subjective approach to assign discount rates to projects, the firm generally makes better decisions than it would if it applied the firm's weighted average cost of capital to all projects.

Question

Quizplus · Accepted Answer

The subjective approach allows firms to adjust discount rates based on the specific risk profile of each project, leading to more accurate assessments and potentially better investment decisions compared to using a uniform weighted average cost of capital for all projects.

When a Firm Uses the Subjective Approach to Assign Discount