Which of the following statements describes a limitation of the WACC approach?
A)The WACC approach can give misleading results if it is used to analyse investment decisions rather than financing decisions.
B)There is no consensus on the taxation issues surrounding the inclusion of strategic options in the WACC approach,which can lead to incorrect inferences.
C)Has no practical application.
D)Can only be used directly for the whole company and to evaluate new projects that are identical to the company's existing operations.

Question

Quizplus · Accepted Answer

The WACC approach is limited because it assumes that the risk profile of new projects is identical to the company's existing operations, making it less suitable for evaluating projects with different risk characteristics.

Which of the Following Statements Describes a Limitation of the WACC