If a company uses the same discount rate for evaluating all projects, which of the following results is likely?
A) Accepting poor, high-risk projects.
B) Rejecting good, low-risk projects.
C) Accepting only good, low-risk projects.
D) Accepting no projects.
E) Answers a and b are correct.

Question

Quizplus · Accepted Answer

Using the same discount rate for all projects can lead to accepting poor, high-risk projects because they may have high potential returns that could be overlooked with a uniform discount rate, and rejecting good, low-risk projects because they may have lower potential returns that are not worth pursuing with the same discount rate. Therefore, both answers A and B are correct.

If a Company Uses the Same Discount Rate for Evaluating