Which of the Following Statements About the Certainty Equivalent Approach

question 11

Multiple Choice

Which of the following statements about the certainty equivalent approach to project evaluation is false?

• A)Risk is incorporated into the analysis by adjusting cash flows rather than the discount rate.
• B)Risk is incorporated into the analysis by adjusting the discount rate rather than cash flows.
• C)Its use is only valid for projects with cash flows considered to be almost certain.
• D)Its use is only valid for cash flows such as government bonds.

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Definitions:

Interest Collected

The amount of money received by an entity as interest from loans, investments, or savings accounts.

Journalize

The process of recording business transactions in the journal of an accounting system.

Petty Cash Fund

A modest sum of money maintained for covering small or unforeseen costs.

Journal Entries

Recorded transactions in the accounting records of a business that demonstrate the financial activities and their impacts.