If the correlation of returns between foreign projects and domestic projects is less than 1.0, then:
A)Foreign projects should be discounted with a higher rate
B)The domestic firm would be better off without the foreign projects
C)The foreign project may not add much risk to the existing domestic operation
D)The foreign projects will experience a higher degree of inflation

Question

Quizplus · Accepted Answer

A lower correlation between returns indicates that the foreign project may not add as much risk to the overall operation as initially feared. Therefore, it may not be necessary to discount the foreign project's rate of return or for the domestic firm to forgo the foreign project altogether.

If the Correlation of Returns Between Foreign Projects and Domestic