How do you obtain the discount rate for an international capital budgeting problem?
How do you obtain the discount rate for an international capital budgeting problem?
Homework Answers
There is no precise formula to obtain a discounting rate for an international capital budgeting problem. However, the risk adjusted discounting rate (RADR) or certainty equivalent approach can be used. In a RADR , a domestic discounting rate for a similar project is first obtained and then the rate is adjusted for foreign currency risks. The RADR looks something like this:
RADR = Risk free rate + Average risk premium + Additional risk factor.
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How do you obtain the discount rate for an international capital
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Thank you! Average: /2 Attempts 7. International capital budgeting One of the important components of multinational...
Thank you!
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Thank you!
Average: /2 Attempts 7. International capital budgeting One of the important components of multinational capital budgeting is to analyze the cash flows generated from Aa Aa subsidiary companies Consider this case: Sebrele Enterprises Inc. is a U.S. firm evaluating a project in Australia. You have the following information about the project The project requires an investment of AU$987,000 today and is expected to generate cash flows of AU$850,000 at the end of each of the next two years....
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