Asked by Jasmine Agosto on Jul 13, 2024
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The certainty equivalent approach uses the cost of capital as the appropriate discount rate.
Certainty Equivalent Approach
A financial analysis method that adjusts uncertain cash flows to reflect the risk-free cash flow an investor would accept in place of taking a risk.
Cost Of Capital
The earnings rate a firm must achieve on its investment endeavors to preserve its market value and draw in capital.
Discount Rate
In discounted cash flow analysis, it's the rate of interest used to determine today's value of cash flows expected in the future.
- Acquire knowledge of and articulate the certainty equivalent technique, including its deployment in capital investment planning.
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Learning Objectives
- Acquire knowledge of and articulate the certainty equivalent technique, including its deployment in capital investment planning.
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