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Suppose a firm uses its company cost of capital to evaluate all projects. Will it underestimate or overestimate the value of high-risk projects?

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Suppose a firm uses its company cost of capital to evaluate all projects. Will it underestimate or overestimate the value of high-risk projects?

According to Brealey, Myers, & Allen (2011) the company cost of capital is defined as "the expected return on a portfolio of all the company's existing securities" (p. 214). The company cost of capital maintains a generalized rule that accepts any project regardless of its risk as long as it offers a higher return than the company's cost of capital (Brealey, Myers, & Allen, 2011, ...

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