Whenever the target firm's projected cash flows are in local currency, the risk free rate is the local country's government bond rate.

Question

Quizplus · Accepted Answer

When the projected cash flows are in local currency, it is appropriate to use the local country's risk-free rate, which is usually represented by the government bond rate. This is because the government bond rate reflects the risk-free rate for investments denominated in the local currency.

Whenever the Target Firm's Projected Cash Flows Are in Local