Adjustments to incorporate country risk into the capital budgeting analysis would involve either the addition of a risk premium to the discount rate or a reduction of the cash flows.

Question

Quizplus · Accepted Answer

Incorporating country risk into the capital budgeting analysis requires adding a risk premium to the discount rate to reflect the additional risk associated with operating in that particular country. Alternatively, cash flows may be adjusted downwards to reflect the higher risk of doing business in that country.

Adjustments to Incorporate Country Risk into the Capital Budgeting Analysis