Question

4.Which of the following capital investment decision methods typically adjust for risk?

Select one:

a. Net present value

b. Internal rate of return

c. Payback

d. Accounting rate of return

Answer 1

Solution:
	Answer is a. Net Present value
Working Notes:
	Net present value method use discount rate to adjust risk to get the present value of cash flows and finally the Net present value of project or assets.
	IRR method do not adjust risk in its computation, to get rate at which is necessary where NPV = 0.
	Payback period just count the period during which cash invested will be realized back .
	But Discounted payback method adjust risk in its computation , which is not given in the option.
	Accounting rate of return method , just computation of return during the period.
Please feel free to ask if anything about above solution in comment section of the question.