When estimating the cost of debt financing for a subsidiary, an MNC can use sensitivity analysis and simulation to account for the uncertainty surrounding forecasted exchange rates.

Question

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Sensitivity analysis and simulation are commonly used tools to account for uncertainty in financial forecasting, including exchange rates. By analyzing how changes in exchange rates impact the estimated cost of debt financing, an MNC can better understand the risks associated with financing their subsidiary overseas.

When Estimating the Cost of Debt Financing for a Subsidiary