medium · Principles of Finance capital-budgeting
If a firm uses its consolidated corporate WACC to evaluate all projects regardless of risk, which of the following outcomes is most likely regarding projects that are significantly less risky than the firm's average assets?
- The firm's total enterprise value will increase as it focuses on safer cash flows.
- The firm will systematically reject positive NPV projects in the lower-risk category.
- The firm will systematically over-invest in these lower-risk projects.
- The project's internal rate of return will decrease to match the firm's WACC.
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