Chapter 14, Problem 2QA

Question Which of the statements below is FALSE? A.        Multinational capital budgeting is a straightforward application of the Net Present Value (NPV. model with one twist: we can do the analysis in either domestic currency or foreign currency. B.         If we are using foreign currency for the NPV decision, all we have to do is restate all the foreign incremental cash flow in terms of future value and use the current exchange rate. C.         In conducting a multinational NPV, one must be careful to avoid differences with rounding of exchange rates, discount rates, and cash flow to produce the exact same value. D.        With the foreign currency approach in NPV analysis, if we know the appropriate discount rate in the home country and the expected inflation rates in the two countries, we can determine the appropriate foreign discount rate.

Which of the statements below is FALSE? A.        Multinational capital budgeting is a straightforward application of the Net Present Value (NPV. model with one twist: we can do the analysis in either domestic currency or foreign currency. B.         If we are using foreign currency for the NPV decision, all we have to do is restate all the foreign incremental cash flow in terms of future value and use the current exchange rate. C.         In conducting a multinational NPV, one must be careful to avoid differences with rounding of exchange rates, discount rates, and cash flow to produce the exact same value. D.        With the foreign currency approach in NPV analysis, if we know the appropriate discount rate in the home country and the expected inflation rates in the two countries, we can determine the appropriate foreign discount rate.

Explain how political risk and exchange rate risk increase the uncertainty of international projects for the purpose of capital budgeting.