Financial managers determine whether riskier proposals generate high enough expected returns to justify the risk. One way they try to do this is by using a lower discount rate when they compute the present values of cash flows for risky projects than when they compute present values for less risky projects.

Question

Quizplus · Accepted Answer

Financial managers use a higher discount rate for riskier projects to account for the increased risk, not a lower one.

Financial Managers Determine Whether Riskier Proposals Generate High Enough Expected