The risk-adjusted discount rate method implicitly assumes that distant cash flows have the same risk as near cash flows.

Question

Quizplus · Accepted Answer

The risk-adjusted discount rate method takes into account the risk associated with distant cash flows by adjusting the discount rate, based on the perceived risk of those cash flows. This means that distant cash flows are considered to have a higher risk than near cash flows, and therefore, have a higher discount rate applied. Therefore, the statement that the method assumes that distant cash flows have the same risk as near cash flows is false.

The Risk-Adjusted Discount Rate Method Implicitly Assumes That Distant Cash