Why Is an Accurate WACC So Important When Evaluating a New

Multiple Choice

Why is an accurate WACC so important when evaluating a new project? Assume a negative cash outflow at Time 0 and positive project cash flows thereafter.

A) The coupon rate on new bonds issued to fund the project will be set equal to WACC.
B) The project's WACC will replace the firm's WACC as the discount rate for all future projects.
C) The project's accept/reject decision will be based on the NPV calculated using that WACC.
D) The return to shareholders will be limited by the WACC.
E) The firm can only maintain or increase its current value if the project WACC exceeds the project's internal rate of return.