Question Details

Explain why the required rate of return on its project 



1. September 11 Effects on NPV. In August 2001, Woodsen Inc. of Pittsburgh, PA considered the
development of a large subsidiary in Greece. In response to the September 11, 2001 terrorist attack
on the U.S., its expected cash flows and earnings from this acquisition were reduced only slightly.
Yet, the firm decided to retract its offer because of an increase in its required rate of return on the
project, which caused the NPV to be negative. Explain why the required rate of return on its project may have increased after the attack.
2. Assessing a Foreign Project. Huskie Industries, a U.S.-based MNC, considers purchasing a small
manufacturing company in France that sells products only within France. Huskie has no other
existing business in France and no cash flows in euros. Would the proposed acquisition likely be
more feasible if the euro is expected to appreciate or depreciate over the long run? Explain.



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