When Conducting a Capital Budgeting Analysis and Attempting to Account

question 24

Multiple Choice

When conducting a capital budgeting analysis and attempting to account for effects of exchange rate movements for a foreign project, inflation ____ included explicitly in the cash flow analysis, and debt payments by the subsidiary ____ included explicitly in the cash flow analysis.

• A) should be; should be
• B) should definitely not be; should definitely not be
• C) should definitely not be; should be
• D) should be; should definitely not be

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Definitions:

Cost Of Capital

The return rate that a company must earn on its investment projects to maintain its market value and attract funds.

NPV

Net Present Value; a method used in capital budgeting to evaluate the profitability of an investment or project by discounting future cash flows.

Cash Flow

Cash flow represents the net amount of cash and cash equivalents being transferred into and out of a business, crucial for assessing its liquidity, flexibility, and overall financial health.

WACC

Stands for Weighted Average Cost of Capital, which calculates a firm's cost of capital, considering the proportion of each capital component, including debt and equity.