In Capital Budgeting for a Multinational, the Starting Discount Rate

question 53

Multiple Choice

In capital budgeting for a multinational, the starting discount rate to which risks stemming fromforeign exchange and political factors can be added, and from which benefits reflecting the parent'slower capital costs may be subtracted is

• A) the cost of capital of the parent (multinational) company.
• B) the local cost of equity capital applicable to the local business and financial environments within which a subsidiary operates.
• C) the risk-free rate of the parent company, adjusted for risk relevant to the foreign subsidiary.
• D) the weighted average cost of capital applicable to all foreign subsidiaries combined.

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Definitions:

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