A ﬁrm that uses its WACC as a cutoff without considering project risk tends to accept negative NPV
projects over time.

Question

Quizplus · Accepted Answer

Using WACC as a cutoff without considering project risk overlooks the fact that some projects may have higher risk and may not be worth accepting even if they have a positive NPV. As a result, the firm may accept negative NPV projects over time, leading to a decline in profitability.

A ﬁRm That Uses Its WACC as a Cutoff Without