Which of the following would be a shortcoming of adjusting discount rates to account for the increased risk of foreign investments?

Question

Quizplus · Accepted Answer

Treating uncertain cash flows as one-sided risks rather than two-sided risks would be a shortcoming of adjusting discount rates to account for the increased risk of foreign investments. One-sided risks assume a downside risk without recognizing the opportunity for positive outperformance, leading to an overestimation of the risk-adjusted discount rate. This can lead to projects being rejected that have positive net present values, whereas two-sided risk would give a more accurate estimate of the risk-adjusted discount rate. The other options are not related to adjusting discount rates for the risk of foreign investments.

Which of the Following Would Be a Shortcoming of Adjusting