WACC Is Not One Magic Rate
Explain when WACC is useful and when a project needs a different risk-adjusted hurdle.
A single discount rate can hide three different risks. What WACC is good for WACC combines the expected return required by debt, equity, and other capital providers. It is useful for firm-level free cash flows when project risk and financing policy resemble the company as a whole. Where WACC breaks down A stable maintenance project, a speculative country launch, and a debt-heavy acquisition do not necessarily deserve the same hurdle. Different business risk, country risk, and financing side effects require different treatment. The better habit Choose the risk match before the rate. If leverage, rating, covenant cushion, or refinancing risk…
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