Many firms use the weighted average cost of capital for the firm as the hurdle rate when comparing to IRR or as the discount rate in an NPV calculation. However, there is an implicit assumption being made when one does that. What problems can one encounter or what errors may occur if one uses the WACC for evaluating all projects where the projects have significantly different risk exposures? Why?
If the projects have inherently different risk exposures, then that means hat one discount rate or one WACC can not be applied for all projects. ...
WACC, IRR and NPV calculations are computed in the solution.