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Given the many diff erent NPVs that a project might assume, we need some way to simplify the information so that we can evaluate the project. Th e risk-adjusted discount rate approach (RAD approach) is one way to do this. With the RAD approach, we estimate the expected or most likely cash flows and discount the flows at the required return for the project. If the cash flows are more uncertain, we use a higher discount rate to penalize the project for its uncertainty. For example, if two projects have the same expected cash flows, but the second project’s cash flows are more uncertain, we adjust for that uncertainty by using a higher discount rate. Th e higher discount rate generates a lower NPV for the riskier project, so we conclude that the more risky project is less valuable than the less risky project. In this way we are adjusting for risk with the discount rate—hence the method’s name, RAD.