Which of these may occur if a company uses its overall cost of capital as the discount rate for all projects?
I.Profitable low-risk projects may be incorrectly rejected.
II.Only projects with risks similar to the current company will be accepted.
III.Too many high-risk projects may be accepted.
IV.Only low-risk projects will be accepted.

Question

Quizplus · Accepted Answer

Using the overall cost of capital as the discount rate for all projects may result in the rejection of potentially profitable low-risk projects (I) and the acceptance of too many high-risk projects (III), while only low-risk projects may be accepted (IV). Projects with risks similar to the current company may still be accepted, but this is not the only outcome (II).

Which of These May Occur If a Company Uses Its