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

Question

Quizplus · Accepted Answer

The subjective approach to assigning discount rates involves using managers' own judgments and opinions, which may not accurately reflect the true risk of the project. This could result in some projects being rejected based on an incorrect assessment of risk, leading to missed opportunities and potential losses for the firm.

When a ﬁRm Uses the Subjective Approach to Assign Discount