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Can a company's assumptions about its projects cause it to misallocate funds? Explain. Does capital rationing impact maximization of shareholder wealth? Explain.

Can a company's assumptions about its projects cause it to misallocate funds? Explain.

Does capital rationing impact maximization of shareholder wealth? Explain.

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1) Yes, if the company calculates it weighted average cost of capital, for example based on the fact that an investment is at a certain risk factor, the company would use this WACC as a discount rate in the calculations of the net present value of the project. If the project is undertaken and it turns out that it has a higher risk than anticipated, this might cause the ...

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