In the context of capital budgeting, risk generally refers to
A) the degree of variability of the cash inflows.
B) the degree of variability of the initial investment.
C) the chance that the net present value will be greater than zero.
D) the chance that the internal rate of return will exceed the cost of capital.

Question

Quizplus · Accepted Answer

When it comes to capital budgeting, risk usually refers to the degree of variability of cash inflows. This refers to the possibility that the actual cash flows will differ from the projected cash flows, which can have a significant impact on the project's overall profitability. Higher variability in cash flows indicates higher risk, which needs to be taken into account when evaluating the project's feasibility. The other options (B, C, and D) do not accurately describe the concept of risk in capital budgeting.

In the Context of Capital Budgeting, Risk Generally Refers to