A firm should never accept a project if its acceptance would lead to an increase in the firm's cost of capital (its WACC).

Question

Quizplus · Accepted Answer

An increase in the firm's cost of capital (WACC) is not a sufficient reason on its own to reject a project. The decision to accept or reject a project should be based on whether or not the project generates a positive net present value (NPV) or internal rate of return (IRR) that is greater than the firm's WACC. If the project generates a positive NPV or IRR greater than the firm's WACC, then accepting the project could increase shareholder value even if it leads to an increase in the firm's cost of capital.

A Firm Should Never Accept a Project If Its Acceptance