In the Process of Estimating the Value of Foreign Companies,with

question 10

Multiple Choice

In the process of estimating the value of foreign companies,with respect to including an additional risk premium in the discount rate to adjust for perceived currency risk,which of the following are true?
I.The risk premiums would probably be relatively small.
II.Currency risk premiums are the reason shareholders would benefit if managers increased their level of currency management.
III.Currency risk premiums are the reason a global application of the CAPM is not recommended.
IV.It is likely that currency risk premiums are included in the spot and/or forward exchange rates used to translate currencies.

• A)I and II only.
• B)I and IV only.
• C)II and III only.
• D)III and IV only.

---

Definitions:

Unrealized Profits

Profits that have been recognized in the accounting records but have not yet been realized through the receipt or payment of cash or other assets.

Inventory

The total amount of goods and materials held by a company for the purpose of sale or production.

Income Taxes

Taxes that individuals or entities pay on their income to federal, state, or local tax authorities.

Unrealized Intercompany Profits

Profits that arise from transactions between entities within the same group, which are not yet realized through sales to external parties.