Which One of the Following Is Advised When Evaluating a Capital

question 43

Multiple Choice

Which one of the following is advised when evaluating a capital project in a foreign country if you are concerned about political risk?

• A) The project should be abandoned until this risk is eliminated.
• B) The project's cost of capital rate should be decreased to offset the perceived risk.
• C) The domestic discount rate should be increased to account for the added risk.
• D)The project cash flows should be decreased to account for the political risk.

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Definitions:

Real Options

Options with payoffs in real goods.

Operating Cash Flow

Measurement of the cash generated by a company's normal business operations.

Quantity Sold

The total number of units of a product or service that have been sold within a specific period.

NPV

Net Present Value; a calculation that compares the present value of cash inflows to the present value of cash outflows over a period of time.