The certainty equivalent approach uses the cost of capital as the appropriate discount rate.

Certainty Equivalent Approach

A financial analysis method that adjusts uncertain cash flows to reflect the risk-free cash flow an investor would accept in place of taking a risk.

Cost Of Capital

The earnings rate a firm must achieve on its investment endeavors to preserve its market value and draw in capital.

Discount Rate

In discounted cash flow analysis, it's the rate of interest used to determine today's value of cash flows expected in the future.

Acquire knowledge of and articulate the certainty equivalent technique, including its deployment in capital investment planning.

Verified Answer

Final Answer :

False

Explanation :

The certainty equivalent approach uses a risk-adjusted discount rate, which is higher than the cost of capital.

Learning Objectives

Acquire knowledge of and articulate the certainty equivalent technique, including its deployment in capital investment planning.