In order to use the WACC to evaluate a future project's flows, which of the following must hold?

Question

Quizplus · Accepted Answer

The WACC is calculated using the firm's proportion of debt and equity financing and the overall systematic risk of the firm, so in order to use it to evaluate a future project's cash flows, the project must be financed with the same proportion of debt and equity as the firm (a) and have the same systematic risk as the overall firm (b). Additionally, the project must be viable, although this is not directly related to the use of the WACC as an evaluation tool.

In Order to Use the WACC to Evaluate a Future