The higher the risk of a project, the higher its risk-adjusted discount rate and thus the lower the net present value for a given stream of cash inflows.

Question

Quizplus · Accepted Answer

This statement is true. The risk-adjusted discount rate takes into account the level of risk associated with a project and adjusts the discount rate accordingly. A higher discount rate leads to a lower net present value for a given stream of cash inflows because the value of future cash flows is discounted more heavily due to the higher perceived risk.

The Higher the Risk of a Project, the Higher Its