If a fiRm Uses Its WACC as the Discount Rate

question 6

True/False

If a firm uses its WACC as the discount rate for all of the projects it undertakes, then the firm will
tend to favor low risk projects over high risk projects.

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Definitions:

Beta

A rephrasing: A statistical estimate of a security's sensitivity to market movements, used to gauge its risk in comparison to the broader market.

Treynor Measure

A performance metric for determining how well an investment compensates the investor for taking a given level of market risk.

Beta

A measure of a stock's volatility in relation to the overall market; a beta greater than 1 indicates higher volatility than the market, and less than 1 indicates lower.

Comparison Universe

A benchmark or group of benchmarks used to evaluate the performance of an investment or fund.