With the ____ approach, the decision maker adjusts separately each period's cash flows to account for the specific risk of those cash flows.
A) risk-adjusted discount rate
B) NPV/payback
C) certainty equivalent
D) economic life

Question

Quizplus · Accepted Answer

The certainty equivalent approach involves adjusting the cash flows themselves to reflect their risk, rather than adjusting the discount rate. This method directly modifies each period's cash flows to a "certain" equivalent value that the decision maker would be indifferent to receiving instead of the risky cash flow.

With the ____ Approach, the Decision Maker Adjusts Separately Each