When evaluating a foreign investment project, it is important for the MNC to consider the effect of political risk, as a sovereign country can change "the rules of the game". To account for this
A)the MNC may adjust the cost of capital upward.
B)the MNC may lower the expected cash flows from the foreign project.
C)the MNC may purchase insurance policies against the hazard of political risks.
D)all of the above

Question

Quizplus · Accepted Answer

All three options are valid methods for MNCs to account for political risk. Adjusting the cost of capital upward and lowering expected cash flows are ways to reflect the risk in the project's financial analysis. Purchasing insurance policies can help to mitigate some of the risk and provide a safety net in case of negative political events. It is important for MNCs to consider all available options for managing political risk and tailor their approach to the specific circumstances of each project.

When Evaluating a Foreign Investment Project, It Is Important for the MNC