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Risk Evaluation Approaches in Capital Budgeting
SUBJECT : Financial Management
PUBLISHED ON : 16/09/13
NUMBER OF PAGES : ( 12 Pages)
PRICE : Rs 9

Risk Adjusted Discount Rate Approach is one of the simplest and the most widely used methods for incorporating risk. Under this method, the amount of risk inherent in a project is incorporated in the discount rate employed in the present value calculations. Risky projects will have high discount rates and safe projects will have low discount rates. The method makes use of differential risk in different classes of investments. The use of single rate of discount would be logically inconsistent with the wealth maximisation goal. Investors demand a higher rate while providing capital to an investment of higher risk.

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