Risk

The relative risk of a proposed project is best accounted for by which of the following procedures?

Answer

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Adjusting the discount rate upward if the project is judged to have above-average risk.

Adjusting the discount rate downward if the project is judged to have above-average risk.

Reducing the NPV by 10% for risky projects.

Picking a risk factor equal to the average discount rate.

Ignoring risk because project risk cannot be measured accurately.