Suppose a ﬁrm uses a constant WACC in determining the value of capital budgeting projects rather than using the security market line. The ﬁrm will tend to _____________________.

Question

Quizplus · Accepted Answer

Using a constant WACC ignores the varying risk levels of different projects, leading to the acceptance of high-risk projects that may not be adequately compensated by their returns, thus increasing the firm's overall risk profile over time.

Suppose a ﬁRm Uses a Constant WACC in Determining the Value