The firm's total weighted average cost of capital should be the foundation upon which the discount rate for projects with above-average riskiness is determined.
The discount rate is the rate used to discount future cash flows from an investment to the present value in order to assess whether an investment will be successful, whereas the cost of capital refers to the minimal rate of return required from an investment to make it worthwhile.
When a company wishes to earn as much cash flows as it is paying investors for their capital, the WACC is employed as a discount rate.
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