John Barleycorn estimates his firm's after-tax WACC at only 8%. Nevertheless he sets a 15% companywide discount rate to offset the optimistic biases of project sponsors and to impose "discipline" on the capital-budgeting process. Suppose Mr. Barleycorn is correct about the project sponsors, who are in fact optimistic by 7% on average. Will the increase in the discount rate from 8% to 15% offset the bias?
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