If changing discount rates from the company cost of capital to the project cost of capital changes NPV from negative to positive, then the project should use the:
A)Company cost of capital and be accepted
B)Company cost of capital and be rejected
C)Project cost of capital and be accepted
D)Project cost of capital and be rejected

Question

Quizplus · Accepted Answer

If changing the discount rate from the company cost of capital to the project cost of capital changes the NPV from negative to positive, it means that the project's cash flows are not being discounted appropriately using the company cost of capital. Using the project cost of capital will provide a more accurate discount rate for the project's cash flows and will result in a positive NPV. Therefore, the project should use the project cost of capital and be accepted.

If Changing Discount Rates from the Company Cost of Capital