Country risk should be incorporated into the international capital budgeting analysis by

Question

Quizplus · Accepted Answer

Country risk refers to the risks associated with investing in a particular country, which might include political instability, changes in regulations, currency risk, and other factors that may impact the investment. Therefore, it is essential to incorporate the country risk into the analysis of international capital budgeting to make an informed decision. Adjusting the company's discount rate for the additional risk is the best choice to incorporate the country risk into the international capital budgeting analysis. This adjustment will reflect the additional risks associated with investing in a particular country, and it will provide a more accurate measure of the project's profitability, helping the company to make a better investment decision. Increasing cash flow estimates from the project might not be appropriate as it can lead to overestimation of the project's profitability. Doing nothing is not an option as it would ignore the additional risks associated with investing in a particular country.

Country Risk Should Be Incorporated into the International Capital Budgeting