Question

A firm’s WACC can be correctly used to discount the expected cash flows of a new project when that project: will be financed with the same proportions of debt and equity as those currently used by the overall firm. will be financed solely with new debt and internal equity. will be financed solely with internal equity. has the same level of risk as the firm’s current operations. will be managed by the firm’s current managers.

Answer 1

A firm's WACC can be correctly used to Discount the expected cash flows of a new project when the project has the same level of risk as the firm's current operations.