Purchase Solution

Risk adjusted discount rate

Not what you're looking for?

Ask Custom Question

A firm has a WACC of 10%, and it wishes to undertake a project that is far more risky than projects previously accepted under the normal course of its business. How should the company evaluate this project? Why?

Purchase this Solution
Solution Summary

This explains the meaning of Risk adjusted discount rate

Solution Preview

The WACC is simply the cost of the several types of capital (called capital components) used by a firm, weighted by their proportions in the firm's capital structure. In order to calculate the WACC, the analyst has to estimate
the cost of debt
the cost of preferred ...

Purchase this Solution
Free BrainMass Quizzes
Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

Motivation

This tests some key elements of major motivation theories.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

View More Free Quizzes
Related BrainMass Solutions

  • Risk-adjusted discount rates

    35155 Risk-adjusted discount rates In adjusting for risk, which of the following is - "TRUE" - about the risk adjusted discount rate and/or the certainly equivalent methods _____________ (a) The risk-adjusted discount rate allows for the use of

  • Project Risk Analysis

    For the low risk project, the risk-adjusted discount rate to be used may be 8%, for example, arrived as 10% minus 2% risk factor and thus, the risk-adjusted discount rate becomes 8%.

  • Explanation of appropriate risk adjusted discount rate

    High risk will lead to high discount rate, known as risk adjusted discount rate: The following are the advantages of risk-adjusted discount rate method: It is simple and can be easily understood.

  • Evaluate Erica's Farm projects using risk adjusted discount rate

    adjusted discount rate 10% 14% Risk free rate of return 6% 6% Evaluate the projects using risk-adjusted discount rates.

  • Risk in setting different NPV requirements

    The risk-adjusted discount rate approach will yield the same result as the certainty-equivalent approach if the risk-free rate is constant and the risk-adjusted discount rate is the same for all future periods. References: 1.

  • Risk-adjusted NPV for G. Wolfe Corporation

    Wolfe Corporation uses the risk-adjusted discount rate method and groups projects according to purpose, and then uses a required rate of return or discount rate that has been pre-assigned to that purpose or risk class.

  • NPV and discount rate

    http://www.answers.com/topic/risk-adjusted-discount-rate The response discusses the NPV and discount rate.

  • Scenario analysis and risk-adjusted NPV

    The risk-adjusted discount rate approach will yield the same result as the certainty-equivalent approach if the risk-free rate is constant and the risk-adjusted discount rate is the same for all future periods.

  • Investment in a security, Risk-adjusted net present value

    Wolfe Corporation uses the risk-adjusted discount rate method and groups projects according to purpose, and then it uses a required rate of return or discount rate that has been preassigned to that purpose or risk class.

  • The risk adjusted discount rate

    158837 The risk adjusted discount rate The risk adjusted discount rate is the sum of the risk-free rate and the risk premium. includes risk in the denominator of the present value calculation.

View More Related Solutions