Using the company cost of capital to evaluate a project is:
I. Always correct
II. Always incorrect
III. Correct for projects that are about as risky as the average of the firm's other assets
A) I only
B) II only
C) III only
D) I and III only

Question

Quizplus · Accepted Answer

The company cost of capital is appropriate for evaluating projects that have a similar risk profile to the firm's average assets. It is not always correct or incorrect, as it depends on the risk level of the project compared to the firm's overall risk.

Using the Company Cost of Capital to Evaluate a Project