Assume the parent of a U.S.-based MNC plans to completely finance the establishment of its British subsidiary with existing funds from retained earnings in U.S. operations. According to the text, the discount rate used in the capital budgeting analysis on this project should be most affected by:

Question

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The parent's cost of capital is the most relevant factor in determining the discount rate used in this capital budgeting analysis, as the project is being financed through internal funds from the parent company. The cost of borrowing funds in the U.K. and economic conditions in the U.K. may also impact the project's success, but they are not as directly relevant to determining the discount rate.

Assume the Parent of a U