Risk-adjusted discount rates (RADRs) are the risk-adjustment factors that represent the percent of estimated cash inflows that investors would be satisfied to receive for certain rather than the cash inflows that are possible for each year.

The risk-adjusted net present value is the rate of return that a project must earn to maintain or improve the firm's share price.

The risk-adjusted discount rate can be computed as the risk free rate plus the product of a project's beta and the market return.

In applying risk-adjusted discount rates to project selection, projects falling above the SML would have a negative NPV and those falling below the SML would have a positive NPV.

Even though a business firms can be viewed as a portfolio of assets, firms are not rewarded for selecting a diversified portfolio of assets because investors can more efficiently diversify away unsystematic risk on their own.

In the real world, different projects have different levels of risk. As a result, the acceptance of a particular project usually has an enormous impact on the firm's overall risk.

The theoretical basis from which the concept of risk-adjusted discount rates is derived is