The preferred approach for risk adjustment of capital budgeting cash flows, from a practical viewpoint, is

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Risk-adjusted discount rates are the preferred approach for risk adjustment of capital budgeting cash flows from a practical viewpoint because it considers the uncertainty of future cash flow projections and adjusts the discount rate accordingly. This approach is more practical and easier to apply than other methods such as sensitivity analysis or simulation, which can be time-consuming and requires significant data analysis. Certainty equivalents are not suitable for risk adjustment because they assume certainty in cash flow projections, which is unrealistic in real-world scenarios.

The Preferred Approach for Risk Adjustment of Capital Budgeting Cash