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

Question

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

Quizplus · Accepted Answer

Country risk analysis should be incorporated within the capital budgeting analysis because the risk associated with a project in a foreign country can significantly affect cash flows, and thus, project feasibility. A country risk rating can provide a general idea of the risk level but does not substitute for a comprehensive capital budgeting analysis. The effect of country risk on cash flows is more important than on sales revenue because ultimately, it is the cash flows that determine the feasibility and profitability of the project. Simply accepting the project with the highest or lowest country risk rating is not a sufficient approach as other factors must also be considered, such as market demand, competition, and regulatory environment. Therefore, the best choice is B.

When Determining Whether a Particular Proposed Project in a Foreign