The required rate of return used to discount the relevant cash flows from a foreign project may differ from the MNC's cost of capital because of that particular project's risk.

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The required rate of return used to discount cash flows from a foreign project may differ from the MNC's cost of capital due to differences in the project's risk. A higher-risk project may require a higher required rate of return to compensate investors for the additional risk, leading to a higher discount rate and lower present value of expected cash flows. Conversely, a lower-risk project may require a lower required rate of return, resulting in a lower discount rate and higher present value of expected cash flows.

The Required Rate of Return Used to Discount the Relevant