Assigning discount rates to individual projects based on the risk level of each project:
A)may cause the firm's overall weighted average cost of capital to either increase or decrease over time.
B)will prevent the firm's overall cost of capital from changing over time.
C)will cause the firm's overall cost of capital to decrease over time.
D)decreases the value of the firm over time.
E)negates the firm's goal of creating the most value for the shareholders.

Question

Quizplus · Accepted Answer

Assigning different discount rates to individual projects based on their risk level can affect the overall weighted average cost of capital of the firm. If high-risk projects are assigned higher discount rates, the overall cost of capital may increase over time, and vice versa. Therefore, the correct choice is A.

Assigning Discount Rates to Individual Projects Based on the Risk