When a ﬁrm uses the subjective approach to assign discount rates to projects, the ﬁrm risks
accepting projects which should have been rejected.

Question

Quizplus · Accepted Answer

The subjective approach to assigning discount rates is based on the judgment and estimation of the decision maker, which can be influenced by biases or inaccurate assumptions. As a result, projects may be accepted even though they do not meet the required rate of return, leading to a lower overall profitability for the firm.

When a ﬁRm Uses the Subjective Approach to Assign Discount