In capital budgeting decisions,the riskiness of a project may be shown by ________.

Question

Quizplus · Accepted Answer

The project's sensitivity to changes in cash flows is the best choice for indicating the riskiness of a project in capital budgeting decisions. A project that is highly sensitive to changes in cash flows is considered to be more risky than a project that is less sensitive. This is because small changes in the cash flows can have a significant impact on the overall profitability of the project. Therefore, projects with high sensitivity to changes in cash flows are typically subject to a higher discount rate, resulting in a lower net present value (NPV) and a higher risk profile.

In Capital Budgeting Decisions,the Riskiness of a Project May Be