Answer-first summary for fast verification
Answer: Adjust the cost of equity by adding a risk premium
When ESG information is qualitative only, the most appropriate approach is to adjust the cost of equity by adding a risk premium. This reflects the increased risk associated with poor ESG performance in the discount rate rather than trying to quantify uncertain future cash flow impacts. Option B is less appropriate because qualitative ESG risks are difficult to reliably incorporate into cash flow projections. Option C is incorrect because ignoring ESG risks altogether would undervalue the risk associated with poor ESG performance.
Author: LeetQuiz Editorial Team
Ultimate access to all questions.
No comments yet.
A
Adjust the cost of equity by adding a risk premium
B
Adjust the projected free cash flows to reflect the ESG risks
C
Make no adjustment because qualitative ESG is difficult to quantify