Why It Is Necessary to Make Sure a Project Is

question 354

Multiple Choice

Why it is necessary to make sure a project is in the same risk class as existing operations before using the WACC as the discount rate?

• A) If a project has high risk, then it should be rejected.
• B) A firm that uses its WACC to evaluate projects without regarding the risk class of the project will tend to become riskier over time.
• C) Only projects with similar risk can result in positive NPVs.
• D) If a project is in a different risk class then a different tax rate must be used.
• E) The risk class of a proposed project is important only if it affects the firm's bond ratings.

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