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Suppose you are valuing a future stream of high risk (high beta) cash outflows. High risk...

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Finance

Suppose you are valuing a future stream of high risk (high beta)cash outflows. High risk means a high discount rate. But the higherthe discount rate, the less the present value. This seems to saythat the higher the risk of cash outflows, the less you shouldworry about them! Can that be right? Should the sign of the cashflow affect the appropriate discount rate? Explain.

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Suppose you are valuing a future stream of high risk (high beta)cash outflows. High risk means a high discount rate. But the higherthe discount rate, the less the present value. This seems to saythat the higher the risk of cash outflows, the less you shouldworry about them! Can that be right? Should the sign of the cashflow affect the appropriate discount rate? Explain.

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