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Risk adjusted rates
Incorporating Risk into Capital Budgeting Discount Rates
December 12, 2023
Can you explain the concept of capital budgeting risk-adjusted discount rates?
Capital budgeting risk-adjusted discount rates involve factoring in project-specific risks into discount rate calculations. Adjusting discount rates based on project risk levels accounts for uncertainties, ensuring a more accurate assessment of future cash flows. Higher-risk projects demand higher discount rates to reflect increased uncertainty, impacting project valuations and investment decisions.
Tags : Risk-adjusted Rates , Capital Budgeting , Discounting Strategies