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In order to put all capital budgeting proposals on an equal footing, the projects should all...

In order to put all capital budgeting proposals on an equal footing, the projects should all use the risk-free rate for the required rate of return

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Answer #1

Statement is False.

Explanation:

Risk is the potential for loss and each and every project has separate risk. In capital budgeting proposals, company should adjust the risk free rate with risk premium as per the level of risk involved in every project. We cannot use simply risk free rate in all projects in order to put all capital budgeting proposals on an equal footing because each and every projects has few amount of risk involved in it or some project may be risk free but most of project contain risk. Risk may be of different types such as price risk, Reinvestment risk, credit risk etc. So, we should adjust risk free rate with appropriate risk premium to get desire rate of return for every project.

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