Which one of the following statements is correct?
A) The subjective approach assigns a discount rate to each project based on other companies in the same category as the project.
B) Overall, a company makes better decisions when it uses the subjective approach than when it uses its WACC as the discount rate for all projects.
C) Companies will correctly accept or reject every project if they adopt the subjective approach.
D) Mandatory projects should only be accepted if they produce a positive NPV when the overall company WACC is used as the discount rate.
E) The pure play approach should only be used with low-risk projects.

Question

Quizplus · Accepted Answer

The subjective approach can lead to better decision-making compared to using a uniform WACC because it allows for adjustments based on project-specific risks and characteristics, rather than applying a one-size-fits-all discount rate.

Which One of the Following Statements Is Correct