Which of the following statements is most correct? O (a) When calculating NPV for cash flows of higher-than-average risk, the discount rate should always be adjusted upward to reflect the corporate cost of capital plus a risk premium. O (b) A weakness of the certainty equivalent method of adjusting project cash flows for risk is that it does not allow individual cash flows to be adjusted to reflect their own unique risk. O (c) The risk-adjusted discount rate method of valuation assigns equal risk to all project cash flows since a constant discount rate is applied over the life of the project. O (d) The certainty equivalent value of a net cash outflow will be higher (in absolute value) than the expected value if the cash outflow has greater-than-average risk.

Which of the following statements is most correct? O (a) When calculating NPV for cash flows of higher-than-average risk, the discount rate should always be adjusted upward to reflect the corporate cost of capital plus a risk premium. O (b) A weakness of the certainty equivalent method of adjusting project cash flows for risk is that it does not allow individual cash flows to be adjusted to reflect their own unique risk. O (c) The risk-adjusted discount rate method of valuation assigns equal risk to all project cash flows since a constant discount rate is applied over the life of the project. O (d) The certainty equivalent value of a net cash outflow will be higher (in absolute value) than the expected value if the cash outflow has greater-than-average risk.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 16MC: When using the NPV method for a particular investment decision, if the present value of all cash...

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When using the NPV method for a particular investment decision, if the present value of all cash Inflows Is greater than the present value of all cash outflows, then _______ . A. the discount rate used was too high B. the investment provides an actual rate of return greater than the discount rate C. the investment provides an actual rate of return equal to the discount rate D. the discount rate is too low
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