Single vs. Multiple Discount Rates: How to Limit "Influence Costs" in the Capital Allocation Process

Most finance textbooks suggest that companies evaluate investment projects using discount rates that reflect both the debt capacity and the unique risks of the project. In practice, however, companies often use their company-wide WACC to evaluate such investments because of the difficulty of (and subjectivity involved in) estimating the risk of individual projects, and the potential for managerial bias and influence to distort the estimates. Copyright (c) 2008 Morgan Stanley.