Some companies inflate the discount rate used in the net present value method to compensate for risk

Question:

Some companies inflate the used in the method to compensate for risk associated with the capital expenditure project. This approach is unsound. Explain why and suggest an alternative approach that is theoretically preferable.
Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...