When an MNC Needs to Finance a Portion of a Foreign

question 46

Multiple Choice

When an MNC needs to finance a portion of a foreign project within the foreign country, the best method to account for a foreign project's risk is to:

• A) apply a required return that is based on the CAPM.
• B) apply a required return based on unsystematic risk.
• C) derive the net present value of the equity investment.
• D) apply the required return equal to the risk-free rate in the foreign country.

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Definitions:

Adjusting Entry

Adjusting entries are journal entries made in accounting records at the end of an accounting period to allocate income and expenditures to the period in which they actually occurred.

Income Statement

A financial statement that shows a company's revenues, expenses, and net income over a specific period, highlighting operational performance.

Total Asset Turnover

A financial ratio that measures a company's efficiency in using its assets to generate sales, calculated as net sales divided by average total assets.

Decrease Ratio

A financial metric that quantifies the reduction in a particular variable or metric relative to another, often used to assess performance or efficiency decline.