You Can Value Overseas Investments Using the NPV of the Cash

question 63

Multiple Choice

You can value overseas investments using the NPV of the cash flows.Which of the following adjustment is necessary to calculate the NPV?

• A) Convert the opportunity cost of capital and cash flows into foreign currency.
• B) Convert the foreign cash flows into domestic currency and use the domestic opportunity cost of capital for discounting.
• C) Use domestic discount rate to discount foreign cash flows.
• D) Convert the foreign cash flow into domestic currency and use the foreign cost of capital for discounting.

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Definitions:

Cross-over Rate

The Cross-over Rate is the point at which two different projects or investments have the same net present value or rate of return, used in capital budgeting to compare projects.

Initial Cash Outlay

The total amount of money required upfront to initiate a project, investment, or venture.

Discount Rate

This is the interest rate used in DCF evaluations to establish the current value of expected future cash inflows.

After-tax Cash Inflows

The amount of money a company receives from its operations after all tax obligations have been paid.