Comment on the following: Despite of several objections, cost of capital is used as the basis to evaluate investments.

Despite several objections, cost of capital is used as the basis to evaluate investments whose cash flows are perfectly correlated with the cash flows from the company's present assets. With perfect co-relation between the two sets of cash flows, risk is the same. But, if the timing of the cash flows is not same, the same discount rate cannot be used for both investments. But weighted average cost of capital represents averaging of all the risks of the company and can be used to evaluate investments in as much as the same manner as that of the pay-back method. It gives some insights and guidance and to that extent it is good to be used. Present value of an investment can be computed using a weighted average cost of capital and this can be compared with present values calculated using the other discount rates. It may be that an investment with a positive present value should be rejected because of its risk characteristics or that an investment with a negative present value using the weighted average cost of capital should be accepted. All this will differ from situation to situation and case to case. Nevertheless, evaluation of projects involving capital investments requires some basis which could serve as the minimum rate of return which a project should generate. In such cases, weighted cost of capital could serve as an accepted discounting rate for evaluating investment decisions as no project will be acceptable which does not generate funds equal or greater to the cut-off rate represented by weighted cost.