Asked by Anushruti Singh on Apr 29, 2024
Verified
Riskier firms have a lower risk-adjusted cost of capital resulting in lower share prices for those companies.
Risk-Adjusted Cost
A financial assessment that accounts for the risk of an investment, adjusting the cost to reflect potential uncertainties.
Lower Share Prices
Lower share prices indicate a decrease in the market price of a company’s stock, often reflecting changes in the company's financial health or market conditions.
- Understand the significance of assessing risk when determining discount rates for future cash flows.
Verified Answer
ZK
Zybrea KnightMay 04, 2024
Final Answer :
False
Explanation :
Riskier firms have a higher risk-adjusted cost of capital as investors demand a higher return to compensate for the additional risk involved. This results in higher share prices for those companies that compensate for the additional risk.
Learning Objectives
- Understand the significance of assessing risk when determining discount rates for future cash flows.