The risk-adjusted discount rate approach is considered preferable to the weighted cost of capital approach in determining the net present value of a project when the projects under consideration differ significantly in _____.
A) the number of cash flows generated by the projects
B) their total return
C) their cash inflows
D) their risk characteristics

Question

Quizplus · Accepted Answer

The risk-adjusted discount rate approach takes into account the risk characteristics of the projects, which is important when projects differ significantly in risk. The weighted cost of capital approach does not explicitly consider risk, making it less suitable for projects with different levels of risk. The other options (A, B, and C) do not necessarily require the use of the risk-adjusted discount rate approach over the weighted cost of capital approach.

The Risk-Adjusted Discount Rate Approach Is Considered Preferable to the Weighted