Which of the Following Statements Is FALSE

question 12

Multiple Choice

Which of the following statements is FALSE?

• A)If the foreign project is owned by a domestic corporation, managers and shareholders need to determine the home currency value of the foreign currency cash flows.
• B)In an internationally integrated capital market, two equivalent methods are available for calculating the net present value (NPV)of a foreign project: Either we can calculate the net present value (NPV)in the foreign country and convert it to the local currency at the forward rate, or we can convert the cash flows of the foreign project into the local currency and then calculate the net present value (NPV)of these cash flows.
• C)The risk of the foreign project is unlikely to be exactly the same as the risk of domestic projects (or the firm as a whole), because the foreign project contains residual exchange rate risk that the domestic projects often do not contain.
• D)The most obvious difference between a domestic project and a foreign project is that the foreign project will most likely generate cash flows in a foreign currency.

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Definitions:

Corporate Tax Rate

The share of a company's earnings required to be paid to the government as tax.

Straight Line

A method of calculating depreciation of an asset, where the asset's cost is evenly spread over its useful life.

Market Value

The current price at which an asset or service can be bought or sold in the marketplace.

Unintentionally Biased Estimates

Judgments or projections in financial analysis influenced by unintentional prejudices or statistical biases.