Using a firm's overall cost of capital to evaluate individual projects creates an incentive for managers to avoid high risk projects with potentially high returns.

Question

Quizplus · Accepted Answer

Using a firm's overall cost of capital for all projects can lead to accepting high-risk projects with potentially high returns, as it may underestimate the required return for riskier projects, making them appear more attractive.

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