When Determining Whether a Particular Proposed Project in a Foreign

question 6

Multiple Choice

When determining whether a particular proposed project in a foreign country is feasible:​

• A)a country risk rating can adequately substitute for a capital budgeting analysis.
• B)country risk analysis should be incorporated within the capital budgeting analysis.
• C)the effect of country risk on sales revenue is more important than the effect on cash flows.
• D)the project with the highest country risk rating (lowest country risk) should be accepted.
• E)B and D

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Definitions:

Equity

The value of an ownership interest in property or a business, after deducting liabilities from assets.

Return on Sales Ratio

A financial ratio that measures the efficiency of a company in generating operating profit from its revenue.

Net Sales

The revenue a company earns from sales after subtracting the costs of returns, allowances for any damaged or missing items, and discounts.

Net Income Before Taxes

The total earnings of a company before taxes have been deducted.