If a firm's projects differ in risk, then one way of handling this problem is to evaluate each project with the appropriate risk-adjusted discount rate.

Question

Quizplus · Accepted Answer

This is true. The riskier a project is, the higher the discount rate should be to reflect the higher level of risk. This is called a risk-adjusted discount rate approach. By using this approach, each project is evaluated and discounted at a rate that reflects its unique level of risk.

If a Firm's Projects Differ in Risk, Then One Way