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

Question

Quizplus · Accepted Answer

Incorporating country risk into the international capital budgeting analysis can be done by adjusting the firm's discount rate for the additional risk. This is because country risk affects the overall level of risk the project faces and therefore the required rate of return. By adjusting the discount rate, the present value of expected cash flows can be properly assessed, taking into account the uncertainty and risk associated with the country where the investment is being made. The other options - increasing cash flow estimates from the project and including the country risk premium to sunk costs - are not correct ways to incorporate country risk into the analysis.

Country Risk Should Be Incorporated into the International Capital Budgeting