Nominal cash flows in a foreign currency should be
discounted at the nominal discount rate in the foreign currency.
The parent's opportunity cost of capital in the domestic currency
does not appropriately reflect the exchange rate risks of the
foreign currency and business risk of functioning in a foreign
country. The cost of debt is appropriate only for debt cash flows
and hence is incorrect. The weighted average cost of capital
(assumed to be of the parent company) is inappropriate as the WACC
reflects the parent company's risk level and not that of its
foreign subsidiary.