Final answer:
The appropriate cost of capital to use in valuing an IT project is not the same for all projects as it must be adjusted for specific project risk. The higher the risk, the higher the expected rate of return must be for it to be considered a good investment.
Step-by-step explanation:
The statement that the appropriate cost of capital to use in valuing an IT project is the same regardless of the project riskiness is false. In financial management, it is recognized that different projects have different levels of risk and therefore should be evaluated with a cost of capital that is adjusted for the project's specific risk level. The cost of capital is a rate that a company must expect to pay on its investments to warrant the risk taken, to satisfy its debt and equity holders.
For example, if a firm has a base cost of financial capital of 9% and a project offers a 5% return to society, adjusting for the difference would result in an effective rate of return of 4% for the firm. Thus, they would need to consider this adjusted rate when deciding how much to invest. For instance, based on the 4% effective rate of return, they might decide to invest $183 million, as higher risk typically requires a higher rate of return to be deemed acceptable for investment.