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Accounting for changes in risk. Santa Monica SA (Portugal) was considering establishing a consumer products division in Germany, which would be financed by German banks. Santa Monica completed its capital budgeting analysis in August. Then, in November, the government leadership stabilized and political conditions improved in Germany. In response, Santa Monica increased its expected cash flows by 20% but did not adjust the discount rate applied to the project. Should the discount rate be affected by the change in political conditions?

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Financial Management, Finance

Category:- Financial Management
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