Using the risk-adjusted discount rate approach, projects with high coefficients of variation will have ______ net present values than projects with low coefficients of variation and similar cash flows.

Question

Quizplus · Accepted Answer

The risk-adjusted discount rate approach considers the risk of a project in calculating the discount rate. Projects with high coefficients of variation represent higher risk, and as a result, a higher discount rate. This higher discount rate will lead to a lower net present value for the project compared to a project with a lower coefficient of variation and similar cash flows. Therefore, projects with high coefficients of variation will have lower net present values compared to projects with low coefficients of variation and similar cash flows.

Using the Risk-Adjusted Discount Rate Approach, Projects with High Coefficients