In capital budgeting, risk is the degree of variability of cash flows.

Question

Quizplus · Accepted Answer

Risk is indeed measured by the degree of variability of cash flows in capital budgeting. A higher degree of variability indicates higher risk, as it implies a greater uncertainty about the future cash flows. Risk is an important factor to consider when evaluating investment projects, as it affects the expected return and the required rate of return to compensate for holding the investment.

In Capital Budgeting, Risk Is the Degree of Variability of Cash