Blakemore Industries is a Canadian firm that is considering a new project in the U.S. The company requires a 12 % rate of return on its comparable Canadian projects. The inflation rate in Canada is expected to be 4 % while inflation is expected to be 5 % in the U.S. Based on this information, you know the required return on the project:

Question

Quizplus · Accepted Answer

EWhen analyzing the project using the foreign currency approach, the required return will be greater than 12% due to the higher inflation rate in the U.S. (5%) compared to Canada (4%). This is because the nominal return needs to compensate for the higher inflation rate in the foreign country. Conversely, when analyzing using the home currency approach, the required return will be less than 12% because the inflation rate in the home country (Canada) is lower, and the project's returns would be adjusted back to the home currency, which has a lower inflation rate.

Blakemore Industries Is a Canadian Firm That Is Considering a New