For a multi-product firm, if a project's beta is different from that of the overall firm, then:
A) the CAPM can no longer be used.
B) the project should be discounted using the overall firm's beta.
C) the project should be discounted at a rate commensurate with its own beta.
D) the project should be discounted at the market rate in all cases.
E) the project should be discounted at the T-bill rate in all cases.

Question

Quizplus · Accepted Answer

The project should be discounted at a rate commensurate with its own beta because the beta reflects the project's own systematic risk, which may differ from the overall firm's risk profile. This ensures that the discount rate accurately reflects the project's risk.

For a Multi-Product Firm, If a Project's Beta Is Different