A firm's cost of capital should be used as the discount rate for every new project the firm considers.

Question

Quizplus · Accepted Answer

The cost of capital is only one of the factors that determine a project's discount rate. The discount rate should also reflect the specific risk associated with the project and should be adjusted accordingly. Therefore, using the firm's cost of capital as the discount rate for every new project may lead to inaccurate investment decisions.

A Firm's Cost of Capital Should Be Used as the Discount