Taking Actions That Reduce Risk

question 16

Multiple Choice

Taking actions that reduce risk

• A)raises your expected value.
• B)makes you less risk-averse.
• C)is impractical in most circumstances.
• D)changes your utility function.

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Definitions:

WACC

Weighted Average Cost of Capital; the average rate of return a company is expected to pay its shareholders for using their capital.

NPV

Net Present Value, a calculation that compares the value of all cash inflows and outflows of a project or investment using a discount rate.

Cash Inflows

The movement of money into a business or project, typically from operations, financing, or investing activities.

IRR

Internal Rate of Return; a financial metric used to estimate the profitability of potential investments, calculating the discount rate that makes the net present value of all cash flows equal to zero.