What will happen over time if a firm uses its overall WACC to evaluate all projects, regardless of each project's risk level?

a) It will reject projects that it should have accepted

b) the firm overall will become riskier

c) the firm's risk will not change over time

d) it will accept projects that it should have rejected

e) using the firm's WACC to evaluate all projects is appropriate

Answer: Option A and D

Explanation: In simple words, weighted average cost of capital refers to the expected amount for the return that a company has to pay to all its security holders.

Weighted average cost of capital should be abducted as per the risk of the project that a company is willing to take as every prospect have different needs and requirements which directly affects the level of threat of capital loss.

For a high risk project WACC should be increased and vice-versa.