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LOS c: Discuss the arrangements for adjusting cash flows, rather than adjusting the discount rate, to account for emerging market risks (e.g., inflation, macroeconomic volatility, capital control, and political risk) in a scenario analysis. ffice ffice" />
Q1. Which of the following is NOT an argument for adjusting cash flows to account for emerging market risks rather than adjusting the discount rate?
A) Country risk is not diversifiable.
B) Many factors directly affect cash flows.
C) Country risk is a one-sided risk.
Correct answer is A)
The four arguments that support adjustments to cash flow rather than adjusting the discount rate are:
§ Country risks are diversifiable.
§ Many factors directly affect cash flows.
§ Companies respond differently to country risk.
§ Country risk is one-sided risk.
Q2. The best way to incorporate country risk into emerging market company valuations is by adjusting the:
A) risk-free rate.
B) cash flows.
C) discount rate.
Correct answer is B)
Evidence suggests that country risks can be best captured by adjusting cash flows in a scenario analysis rather than including them into the discount rate. The four arguments that support adjustments to cash flow rather than adjusting the discount rate are:
§ Country risks are diversifiable.
§ Many factors directly affect cash flows.
§ Companies respond differently to country risk.
§ Country risk is one-sided risk.
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发表于 2009-3-6 14:56
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