Question

To mitigate country risk, an MNC can ____________ . i) shorten the minimum payback period ii) increase the hurdle rate iii) adjust operating cash flows iv) choose equity financing over debt financing Group of answer choices

i and iii ,

,i

,i, ii, and iii

All of the above strategies work to mitigate country risk

Answer 1

Option (d) is correct

All the above strategies work to mitigate country risk.

Option (a) is correct because when there is a country risk, then it is better to recover the initial investment as early as possible, so payback period should be shortenend.

Option (b) is correct as if we increase the hurdle rate then internal rate of return will also increase.

Option (c) is correct as operating cash flows should be adjusted to have inflows and outflows of cash based on the risk factors of the country. This will help in realizing the cash flows early or deferring the cash flows as per the risk factors.