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Risk analysis in capital budgeting
Financial Management
Sir in the problem part B the answer given by them is not understandable can u please explain .. Because to calculate using RADR we need risk free return plus risk premium . In question we only have risk free return . Then how to calculate using RADR
Answers (3)
ruchi lahoti
Please share your working in order to help
I am unable to calculate part b because they did not gave risk premium . To do RADR we need risk premium . So I can't calculate it . Is risk premium given in question in hidden form ???
Thread Starter
Enuguru Sai NithinI am unable to calculate part b because they did not gave risk premium . To do RADR we need risk premium . So I can't calculate it . Is risk premium given in question in hidden form ???
The question does not provide risk premium. It only asks about which project would use a higher discount rate. By looking at the certainty factors of both the projects, the certainty is more more project N and hence it is less risky. Whereas project M is more risky with more return or premium and likewise a higher discount rate
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