Which of the following is not an advantage of the certainty-equivalent approach to determining the NPV of a project?
A)It allows the decision maker to incorporate preferences for risk.
B)It is easier to interpret the net present value when the certainty equivalent method is used.
C)It separates the time value of money from the risk of the project.
D)All of the above are advantages of the certainty-equivalent approach.

Question

Quizplus · Accepted Answer

The certainty-equivalent approach does not inherently make the interpretation of NPV easier; it primarily adjusts future cash flows for risk before discounting them at the risk-free rate, thus separating the time value of money from project risk.

Which of the Following Is Not an Advantage of the Certainty-Equivalent