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This is a question from kaplan revision kit.
The lower risk of a project can be recognised by increasing which of the following?
A The cost of the initial investment of the project
B The estimates of future cash inflows from the project
C The internal rate of return of the project
D The required rate of return of the projectThe answer says: The internal rate of return (C) and the cost of the initial investment (A) are independent of the risk of the project. The lower the risk of the project, the less (not greater) is the required rate of return (D).
The question says ‘increasing’ which of the following but in the answer they are saying that if required rate of return is less (decreasing), then risk of project is low
Have you watched my lectures on all of the topics before attempting questions in the revision kit?
The more risky an investment then the required return from investors will be higher. The less risky an investment then the lower the required return.
The return required from any investment always depends on the level of risk in the investment.
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