How can firms incorporate country risk into their NPV calculations?

Question

Quizplus · Accepted Answer

Country risk can be incorporated into NPV calculations through adjustments to discount rates or cash flow assumptions. Discount rates can be adjusted based on the perceived risk associated with the country, such as its political stability, currency volatility, and economic performance. Cash flow assumptions may be adjusted to reflect potential changes in expenses or revenues due to country-specific factors. These adjustments can improve the accuracy of the NPV calculation and provide a more comprehensive evaluation of the project's profitability.

How Can Firms Incorporate Country Risk into Their NPV Calculations