If managers intend to adjust the projections of foreign investments, it is probably better to make the adjustments in:
A) the discount rate used.
B) the cash flows projected.
C) both the discount rate and the cash flows.
D)the exchange rate, but never in the discount rate.

Question

Quizplus · Accepted Answer

Adjusting the cash flows projected would be the best choice as it directly affects the expected returns on the investment. A change in the discount rate would only reflect the risk associated with the investment but would not necessarily reflect changes in the actual cash flows. Adjusting the exchange rate may also have an impact on cash flows, but it is not always a controllable factor for managers.

If Managers Intend to Adjust the Projections of Foreign Investments