Use the following statements to answer these questions:
I.Everything else held constant, increasing the proportion of debt in the project would increase the WACC.
II.A typical project of the company should be discounted using a risk-adjusted rate different than the WACC.

Question

Quizplus · Accepted Answer

I is incorrect because increasing the proportion of debt in a project's financing mix can actually decrease the WACC up to a certain point, due to the tax deductibility of interest payments. II is incorrect because a typical project of the company should be discounted at the WACC, as it reflects the overall cost of capital for the company, assuming the project has a similar risk profile to the company's average project.

Use the Following Statements to Answer These Questions