When a firm analyzes the feasibility of a project, it should consider the:
A) variability of the project's cash flow.
B) correlation of the project's cash flow relative to the prevailing cash flows of the MNC.
C) A and B
D) none of the above

Question

Quizplus · Accepted Answer

When analyzing the feasibility of a project, it is important to consider the variability of the project's cash flows (option A). This is because if the project's cash flows are highly variable, it increases the risk associated with the project. Additionally, it is important to consider the correlation of the project's cash flow relative to the MNC's prevailing cash flows (option B). This is because if the project's cash flows are negatively correlated with the MNC's cash flows, it can act as a natural hedge and reduce the overall risk of the MNC. Therefore, both options A and B should be considered when analyzing the feasibility of a project.

When a Firm Analyzes the Feasibility of a Project, It