Kelly's uses the firm's WACC as the required return for some of its projects.For other projects, the firms uses a rate equal to WACC plus one percent, while another set of projects is assigned rates equal to WACC minus some amount.Which one of the following factors should be the key factor the firm uses to determine the amount of the adjustment it will make when assigning a discount rate to a specific project?

Question

Quizplus · Accepted Answer

The perceived risk level of the project should be the key factor in determining the adjustment to the discount rate, as projects with higher risk should have a higher required return to compensate for that risk.

Kelly's Uses the Firm's WACC as the Required Return for Some