A risk premium is added to the discount rate when future cash flows are uncertain because

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    of the default risk of the investment.
     future cash flows may be higher or lower than expected.
     a higher risk premium adds to the value of the future cash flows.
     owners of the firm are risk averse and so future cash flows that are certain are worth more to investors than those that are uncertain.
asked Jun 2, 2013 in Economics by anonymous
    

1 Answer

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owners of the firm are risk averse and so future cash flows that are certain are worth more to investors than those that are uncertain.
answered Jun 3, 2013 by Xyz ~Expert~ (3,650 points)

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