If a ﬁrm uses its WACC as the discount rate for all of the projects it undertakes, then the ﬁrm will
tend to become riskier over time.

Question

Quizplus · Accepted Answer

This is because the WACC is calculated based on the current risk level of the firm, and if the firm consistently uses the same discount rate for all projects regardless of their risk level, then it may undertake riskier projects over time, leading to an increase in overall firm risk.

If a ﬁRm Uses Its WACC as the Discount Rate