Which of the following is an advantage of the certainty equivalent approach?
A)It allows decision makers to recognize particularly risky years.
B)It uses the cost of capital as the appropriate discount rate which is easier to calculate.
C)It uses regression analysis which gives a certain estimate of cash flows.
D)It uses computer simulation methods which makes a precise prediction of cash flows.

Question

Quizplus · Accepted Answer

The certainty equivalent approach allows decision makers to adjust cash flows for risk, making it easier to recognize particularly risky years by converting uncertain cash flows into certain equivalents.

Which of the Following Is an Advantage of the Certainty