Discount Rates A financial manager has determined that the appropriate discount rate for a foreign project is 16 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 4 percent and 8 percent, respectively.

Question

Quizplus · Accepted Answer

To calculate the appropriate discount rate in the foreign country, we need to adjust the domestic discount rate for the difference in inflation rates between the United States and the foreign country. The formula for the foreign discount rate is:

Foreign Discount Rate = Domestic Discount Rate + Inflation Rate (Foreign Currency) - Inflation Rate (U.S. Dollars)

Plugging in the numbers, we get:

Foreign Discount Rate = 16% + 8% - 4% = 20%

Therefore, the answer is B) 20%.

Discount Rates a Financial Manager Has Determined That the Appropriate