Discount Rates a Financial Manager Has Determined That the Appropriate

question 58

Multiple Choice

Discount Rates A financial manager has determined that the appropriate discount rate for a foreign project is 16 percent. However, that discount rate applies in the United States using dollars. What discount rate should be used in the foreign country using the foreign currency? The inflation rate in the United States and in the foreign country is expected to be 4 percent and 8 percent, respectively.

• A) 16%
• B) 20%
• C) 12%
• D) 24%

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Definitions:

Payback Policy

A company's strategy for determining the timeframe within which an investment recovers its initial cost out of the cash inflows that it generates.

Mutually Exclusive

Events or choices that cannot occur at the same time, requiring a selection to be made between them.

Payback Period

The duration of time it takes for an investment to generate an amount of income or cash equivalent to the cost of the investment, essentially measuring how quickly the investment can be recouped.

Time Value

The concept that money available now is worth more than the same amount in the future due to its potential earning capacity.