If the Correlation of Returns Between Foreign Projects and Domestic

question 18

Multiple Choice

If the correlation of returns between foreign projects and domestic projects is less than 1.0, then:

• A)Foreign projects should be discounted with a higher rate
• B)The domestic firm would be better off without the foreign projects
• C)The foreign project may not add much risk to the existing domestic operation
• D)The foreign projects will experience a higher degree of inflation

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Definitions:

Variable Costing

A method of inventory costing that includes only variable production costs—direct materials, direct labor, and variable manufacturing overhead—in product costs, excluding fixed manufacturing overhead.

Per Unit

A term that refers to expressing costs, revenues, or any other financial metric on a per unit of production or per unit of sale basis.

Fixed Manufacturing Overhead

These are production costs that do not change with the level of manufacturing activity, such as rent for factory premises.

Inventories

Assets held for sale in the ordinary course of business, or materials to be used or consumed in the production process.