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Assigning discount rates to individual projects based on the risk level of each project:

a. Decreases the value of the company over time.
b. Negates the company's goal of creating the most value for its shareholders.
c. May cause the company's overall weighted average cost of capital to either increase or decrease over time.
d. Will cause the company's overall cost of capital to decrease over time.
e. Will prevent the company's overall cost of capital from changing over time.

Respuesta :

Parrain

Answer: c. May cause the company's overall weighted average cost of capital to either increase or decrease over time.

Explanation:

Weighted Average Cost of Capital (WACC) as the term implies, is a weighted average of the various rates that the company uses to source capital. If therefore, the company assigns different discount rates based on risk level, WACC will either increase or decrease overtime.

With better discount rates, the WACC will decrease to reflect the lower risk and with worse rates, WACC will increase to reflect the higher risk associated with the company. .

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