If a company uses its WACC as the discount rate for all of the projects it undertakes then the company will tend to:
A) accept all positive net present value projects.
B) increase the average risk level of the company over time.
C) reject all high-risk projects.
D) reject all negative net present value projects.
E) favor low-risk projects over high-risk projects.

Question

Quizplus · Accepted Answer

Using the WACC as the discount rate for all projects does not account for the varying risk levels of individual projects. Over time, this can lead to accepting more high-risk projects, thereby increasing the company's average risk level.

If a Company Uses Its WACC as the Discount Rate