When incorporating risk into capital budgeting through the interest rate used in NPV or IRR calculations, the rates used are called:
A)inflation adjusted rates.
B)market risk premium.
C)risk-free rates.
D)risk-adjusted rates.

Question

Quizplus · Accepted Answer

The rates used in incorporating risk into capital budgeting through the interest rate used in NPV or IRR calculations are called risk-adjusted rates. This rate takes into consideration the level of risk associated with a particular investment, and adjusts the interest rate accordingly to reflect the additional risk.

When Incorporating Risk into Capital Budgeting Through the Interest Rate