A US-Based MNC Has Just Established a Subsidiary in Algeria

question 56

Multiple Choice

A U.S.-based MNC has just established a subsidiary in Algeria. Shortly after the plant was built, the MNC determines that its exchange rate forecasts, which had previously indicated a slight appreciation in the Algerian dinar, were probably false. Instead of a slight appreciation, the MNC now expects that the dinar will depreciate substantially due to political turmoil in Algeria. This new development would likely cause the MNC to:

• A) lower its estimate of the previously computed NPV.
• B) increase its estimate of the previously computed NPV.
• C) lower its estimate of the previously computed NPV, but not necessarily if the MNC invests enough in Algeria to offset the decrease in NPV.
• D) increase its estimate of the previously computed NPV, but not necessarily if the MNC reduces its investment in Algeria by an offsetting amount.
• E) None of these are correct.

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Definitions:

Availability Heuristic

The availability heuristic is a mental shortcut that relies on immediate examples that come to mind when evaluating a specific topic, concept, method, or decision, often leading to bias.

False Consensus Effect

The tendency to overestimate the number of other people who share one’s opinions, attitudes, values, and beliefs.

Illusion Of Control

The false belief that one can influence certain events, especially random or chance ones.

Fundamental Attribution Error

A cognitive bias that causes people to overemphasize personal characteristics and ignore situational factors in explaining others' behavior.