If a firm is evaluating a new project that has less risk than the average project risk for the company, which of the following statements most correctly identifies the possible outcome if they use the firm-level WACC as the discount rate?

A

Based on the calculated NPV for the project, the company might reject the project even though the projected cash flows represent a positive NPV at the true risk-adjusted discount rate.

B

Based on the calculated NPV for the project, the company might accept the project even though the projected cash flows represent a negative NPV at the true risk-adjusted discount rate.

C

Based on the calculated NPV for the project, it is equally likely that the company might reject the project even though it should have been accepted or accept the project even though it should have been rejected based on the NPV at the true risk-adjusted discount rate.

D

Based on the calculated NPV for the project, the firm would always accept the correct projects and reject the correct projects.

Your answer: