Asked by
Gio Sebastian Arcebal
on Dec 01, 2024
Verified
When incorporating risk into capital budgeting through the interest rate used in NPV or IRR calculations, the rates used are called:
A) inflation adjusted rates.
B) market risk premium.
C) risk-free rates.
D) risk-adjusted rates.
Risk-Adjusted Rates
In capital budgeting, a rate used in place of the cost of capital to reflect especially risky projects.
Interest Rate
The amount charged, expressed as a percentage of the principal, by a lender to a borrower for the use of assets.
- Comprehend the theory of risk-adjusted discount rates and their usage in the allocation of capital resources.
- Pinpoint the suitable discount rate for various initiatives, based on their risk factors.
Verified Answer
KM
Learning Objectives
- Comprehend the theory of risk-adjusted discount rates and their usage in the allocation of capital resources.
- Pinpoint the suitable discount rate for various initiatives, based on their risk factors.