The ___________reflects the return that must be earned on the given project to compensate the firm's owners adequately according to the project's variability of cash flows.
A) average rate of return
B) risk-adjusted discount rate
C) internal rate of return
D) cost of capital

Question

Quizplus · Accepted Answer

The risk-adjusted discount rate reflects the return required by the firm to compensate for the project's variability in cash flows. This rate takes into account the risk involved in the project and is adjusted accordingly. The average rate of return is simply the average of the project's returns, and does not account for risk. The internal rate of return is the rate at which the project's net present value equals zero, and does not necessarily account for risk. The cost of capital is the cost of financing a project, and does not directly take into account the variability of cash flows.

The ___________Reflects the Return That Must Be Earned on the Given