Which of the following statements about discount rates is true?
A. The longer the time period over which a transaction will generate cash flows, the higher the discount rate should be.
B. The higher the degree of risk involved in a transaction, the higher the discount rate for future cash flows should be.
C. The greater the amount of cash generated by a transaction, the higher the discount rate should be.
D. The higher the marginal tax rate, the higher the discount rate for future cash flows should be.
Answer: B
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