The ____ approach is widely used by firms that attempt to consider differential project risk in their capital budgeting procedures.
A) net present value
B) internal rate of return
C) risk-adjusted discount rate
D) certainty equivalent

Question

Quizplus · Accepted Answer

The risk-adjusted discount rate approach is the most appropriate for firms that consider differential project risk in their capital budgeting procedures. This approach adjusts the discount rate for each project based on its level of risk, with higher-risk projects assigned higher discount rates. The net present value and internal rate of return methods do not directly account for project risk in their calculations, while the certainty equivalent approach is typically used by risk-averse investors to determine the guaranteed return needed to accept a risky investment.

The ____ Approach Is Widely Used by Firms That Attempt