With the risk-adjusted discount rate approach, in the context of total risk, the discount rates used in evaluating cash flows are determined ____.
A) objectively
B) subjectively
C) using regression analysis
D) objectively and by using regression analysis

Question

Quizplus · Accepted Answer

The risk-adjusted discount rate approach involves adjusting the discount rate based on the level of risk associated with the cash flows. The determination of the discount rate involves subjective judgments by the analyst or the management team, taking into consideration the perceived level of risk associated with the investment. While objective factors such as market data or historical experience may be used to inform this judgment, ultimately the discount rate is subjectively determined. Regression analysis may be used to establish the appropriate adjustments to the discount rate based on the level of risk, but it does not determine the discount rate itself.

With the Risk-Adjusted Discount Rate Approach, in the Context of Total