To reflect greater uncertainty (greater risk)about a future cash inflow,an analyst could
A)increase the discount rate for the cash flow.
B)decrease the discounting period for the cash flow.
C)increase the expected value of the future cash flow before it is discounted.
D)extend the acceptable length for the payback perioD.

Question

Quizplus · Accepted Answer

Increasing the discount rate for the cash flow reflects the greater uncertainty and risk associated with the future cash inflow. A higher discount rate results in a lower present value of the cash flow, which accurately reflects the higher risk involved. Decreasing the discounting period or increasing the expected value of the future cash flow would not reflect the increased uncertainty, and extending the acceptable payback period does not address the uncertainty of the cash flow itself.

To Reflect Greater Uncertainty (Greater Risk)about a Future Cash Inflow,an