Which of the following statements is correct?
A) If a new project is riskier than the firm's existing projects, then it should expect to be "charged" a higher cost of capital than the firm's overall WACC.
B) If a new project is riskier than the firm's existing projects, then it should expect to be "charged" a lower cost of capital than the firm's overall WACC.
C) The project's risk and the cost of capital to which it is compared are independent.
D) None of the options are correct.

Question

Quizplus · Accepted Answer

A new project that is riskier than the firm's existing projects will have a higher cost of equity and possibly a higher cost of debt. Therefore, the overall cost of capital for the project will be higher than the firm's weighted average cost of capital (WACC).

Which of the Following Statements Is Correct