Question: Using the WACC to evaluate all projects may lead managers into accepting high-risk projects that do not compensate adequately for risk and into rejecting low-risk

Using the WACC to evaluate all projects may lead managers into accepting high-risk projects that do not compensate adequately for risk and into rejecting low-risk projects that compensate fully for the level of risk but may not have particularly high rates of return. Describe the situations when using a WACC is not appropriate and how these incorrect decisions may be made.

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