What Is the Best Approach to Take into Account the Relative

question 11

Multiple Choice

What is the best approach to take into account the relative risk of a proposed project?

• A)adjusting the discount rate upward if the project is judged to have above-average risk
• B)reducing the NPV by 10% for risky projects
• C)picking a risk factor equal to the average discount rate
• D)ignoring risk because project risk cannot be measured accurately

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Definitions:

Negligent

Failing to take reasonable care to avoid causing harm or injury to others, typically resulting in legal liability.

Reasonably Competent Accountant

A professional who possesses the necessary skills and knowledge expected of a qualified accountant in performing their duties.

Circumstances

The specific conditions or facts affecting a situation, event, or action which can influence the outcome.

Accountant-client Privilege

A legal privilege that allows clients to refuse to disclose confidential communications with their accountants in legal proceedings.