Final answer:
The assertion that the company cost of capital is the correct discount rate for any project is incorrect as individual projects may require higher or lower rates based on their risk profiles.
Step-by-step explanation:
The statement that the company cost of capital is the correct discount rate for any project undertaken by the company is False. While the company cost of capital, often represented by the weighted average cost of capital (WACC), is a starting point for evaluating projects, the risk profile of individual projects can differ significantly from the company's average risk profile. For projects that are riskier than the average company project, a higher discount rate should be used to reflect the additional risk. Conversely, for less risky projects, a lower discount rate may be appropriate.
Moreover, the cost of capital represents an opportunity cost that considers the returns the company could expect to earn had it invested the funds elsewhere. Hence, if a project returns at least the company's cost of capital, it is considered acceptable, since it generates sufficient returns to compensate for the investment risk.
When making physical capital investments or evaluating proposals with future benefits, such as adding safety features to a highway or environmental policies, a company or government must also use the concept of present discounted value to weigh present costs against future benefits. Different projects can have different risk profiles and thus may need different discount rates for an accurate evaluation.