An increase in the uncertainty associated with a firm's cash flows will cause a decrease in the discount rate that is applied to the valuation of the firm.

Question

Quizplus · Accepted Answer

An increase in the uncertainty associated with a firm's cash flows typically leads to a higher discount rate being applied to the valuation of the firm, as investors demand a higher return for taking on more risk.

An Increase in the Uncertainty Associated with a Firm's Cash