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

If the correlation of returns between foreign projects and domestic projects is less than 1.0, it means that the foreign project may not add much risk to the existing domestic operation. Therefore, the foreign project may not need to be discounted with a higher rate, and it does not necessarily mean that the domestic firm would be better off without the foreign projects. The degree of inflation is not related to the correlation of returns.

If the Correlation of Returns Between Foreign Projects and Domestic