Using a firm's overall cost of capital to evaluate a project's cash flows is problematic in that the firm is a collection of projects, with the possibility that each project has a different level of risk than the other projects currently working for the firm.

Question

Quizplus · Accepted Answer

The statement correctly identifies the problem with using the overall cost of capital to evaluate a project's cash flows, as each project may have a different level of risk that should be taken into account when determining the appropriate discount rate.

Using a Firm's Overall Cost of Capital to Evaluate a Project's