Which one of statement is true about WACC? WACC can be used to any project in th

Question

Which one of statement is true about WACC?

WACC can be used to any project in the firm.

If the financial manager uses firm wide WACC to evaluate a project that is much riskier than a typical project the firm has, he/she will be more likely to accept this project.

The consequence of using firm wide WACC to evaluate new projects is that the firm will be less and less risky over time.

The calculation of WACC doesn t consider corporate income tax.

WACC can be used to any project in the firm.

If the financial manager uses firm wide WACC to evaluate a project that is much riskier than a typical project the firm has, he/she will be more likely to accept this project.

The consequence of using firm wide WACC to evaluate new projects is that the firm will be less and less risky over time.

The calculation of WACC doesn t consider corporate income tax.

Explanation / Answer

Though WACC is the firm wide cost, it cannot be considered as same for all projects. It needs some modification in the form of addition of cost based on the riskiness of the project.

Projects having common risk does not require and addition but unusual and special projects having higher risk needs to consider has cost than firm WACC.

Hence, If the financial manager uses firm wide WACC to evaluate a project that is much riskier than a typical project the firm has, he/she will be more likely to accept this project is TRUE.

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.