Describe the alternatives to using a firms WACC as a discount rate whe

QUESTION

Describe the alternatives to using a firms WACC as a discount rate when evaluating a project.

ate the project, instead of WACC, as in certainty equivalent technique. Since the firm is sure about the future cash inflows, hence there is no risk with regard to collection of those cash flows, hence the risk free rate is appropriate in that scenario. 3)Risk premium: In highly risky projects, risk adjusted discount rate can be used in which a risk premium is added for undertaking higher risk. Such risk premium can be calculated using the capital asset pricing model (CAPM). As per CAPM, risk premium = (market rate of return-risk free rate of return)*beta of the project.

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