Question: Multiple Choice: We have seen that a wrong discount rate may lead to unfavorable investment decisions. Please, identify the WRONG statement in regards to the

Multiple Choice:

  • We have seen that a wrong discount rate may lead to unfavorable investment decisions. Please, identify the WRONG statement in regards to the WACC:

    1. Higher discount rates than the WACC should be applied to higher than average risk projects and speculative projects

    2. The WACC assumes that the capital structure of the company will remain stable (static) through our calculations

    3. If we are evaluating a safer (lower risk) project than the average, we should discount it using the companys cost of capital (WACC)

    4. We use market information for the Equity and the Debt value to calculate the weights for the WACC

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