The Use of WACC as the Discount Rate When Evaluating

question 59

Multiple Choice

The use of WACC as the discount rate when evaluating a project is acceptable when the

• A)company is well established and financially stable.
• B)WACC produces a positive NPV.
• C)risk of the project is equal to the company's overall level of risk.
• D)company is well diversified and the unsystematic risk is negligible.
• E)project has only systematic risk.

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Definitions:

Weighted-Average Method

An inventory costing method that assigns an average cost to each unit of inventory, based on the weight of its cost in total inventory.