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Chapter 1

Q. 1.ST.2

Explain why unfavorable economic or political conditions affect the MNC’s cash flows, required rate of return, and valuation.


Verified Solution

Weak economic conditions or unstable political conditions in a foreign country can reduce cash flows received by the MNC, or they can result in a higher required rate of return for the MNC. Either of these effects results in a lower valuation of the MNC.