Question
As a business owner you have two business opportunities that are presented to you. Both options will present future cash flows over a three year
As a business owner you have two business opportunities that are presented to you. Both options will present future cash flows over a three year period. To determine what option you are going to select a net present value analysis will be performed. One of the options is rather risky and the future cash flows are not certain. The other option is not that risky and future cash flows are known and consistent. Explain the relationship between the risk of the two options with the future cash flows (does risk increase or decrease NPV?) and the discount rate used to calculate NPV.
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