When determining whether a particular proposed project in a foreign country is feasible:

Question

Quizplus · Accepted Answer

Country risk analysis should be incorporated within the capital budgeting analysis to assess the potential impact of political, economic, and social risks on the project's cash flows, cost of capital, and profitability. A country risk rating alone cannot adequately substitute for a proper capital budgeting analysis. The effect of country risk on cash flows is more important than the effect on sales revenue, as cash flows determine the project's net present value and ultimate viability. The project with the lowest country risk rating (highest country risk) may not necessarily be rejected, as the potential returns may outweigh the risks or could be mitigated through risk management strategies.

When Determining Whether a Particular Proposed Project in a Foreign