Using the WACC to evaluate all projects has the effect of making low-risk projects look MORE attractive and high-risk projects look LESS attractive.

Question

Quizplus · Accepted Answer

The WACC (Weighted Average Cost of Capital) does not adjust for project-specific risk; it reflects the overall cost of capital for the company. Using WACC for all projects treats them as if they have the same risk as the company average, not making low-risk projects look more attractive or high-risk projects less attractive based on their specific risk levels.

Using the WACC to Evaluate All Projects Has the Effect