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Risk adjusted discount rate

A risk-adjusted discount rate improves capital budgeting decision making compared to using a single discount rate for all projects. Explain.

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The RADR (risk-adjusted discount rate) makes capital budgeting decision making better in comparison to the single discount rate method as the RADR facilitates us in setting a bigger obstacle for the high risk project and a smaller obstacle for the low risk project therefore aligning our capital budgeting decision making procedure closely with the goal of increasing the firm’s value.

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