Discount Rates A financial manager has determined that the appropriate discount rate for a foreign project is 15 percent. However, that discount rate applies in the United States using dollars. What discount rate should be used in the foreign country using the foreign currency? The inflation rate in the United States and in the foreign country is expected to be 5 percent and 7 percent, respectively.

Question

Quizplus · Accepted Answer

To calculate the discount rate in a foreign country using a foreign currency, we need to adjust the US discount rate for the difference in inflation rates between the US and the foreign country. We can use the following formula:
Foreign discount rate = US discount rate + (inflation rate in foreign country - inflation rate in US)
= 15% + (7% - 5%)
= 17%

Discount Rates a Financial Manager Has Determined That the Appropriate