Diversified Industries is a multiproduct company operating in a number of industries.Assume the company is analyzing a new project that has risks unrelated to those of the current company's products.When computing the net present value of the new project the cash flows should be discounted using

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The best choice is to discount the cash flows using a rate commensurate with the risk level of the project because the risks of the new project are unrelated to those of the current products. It is important to use a discount rate that reflects the specific riskiness of the investment being analyzed. Using a rate based on the current beta or a beta of one may not accurately capture the risk of the new project, and the risk-free rate or market rate may not be appropriate for a project with different risks than the company's current operations. Therefore, using a rate that is reflective of the project's specific risks is the most appropriate approach.

Diversified Industries Is a Multiproduct Company Operating in a Number