Using WACC in evaluating a firm's project implies that the risk of the project is comparable to the average risk of the firm's other investments.

Question

Quizplus · Accepted Answer

WACC (weighted average cost of capital) takes into account the cost of financing a project or investment and represents the average return required by investors for investing in the company. Therefore, using WACC assumes that the risk of the project is comparable to the overall risk of the company's other investments.

Using WACC in Evaluating a Firm's Project Implies That the Risk