JCPenny decided to consider explanding into various foreign countries; it applied a comprehensive country risk analysis before making its expansion decision. Initial screening of 30 foreign countries were based on political and economic factors that contribute to country risk. For the remaining 20 countries where country risk was considered to be toldreable, specific country risk characteristics of each country were considered. One of JCPennys biggest targets is Mexico, where it planned to build and operate seven large stores.
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b. Explain why the JCPenny stores in Mexioc and in other foreign markets are subject to financial risk ( a subset of country risk )
c. Assume that JCPenny decides to use dollars to finance the expansion of stores in Mexico. Second, assume that JCPenny decides to use one set of dollar cash flow estimates for any project that it assesses. Third, assume that the store in Mexico are not subject to political risk. Do you think that the required rate of return on these projects would different from the required rate of return on stores built in the United States at the same time? Explain.
d. Based on your answers to the previous question, does this mean that proposals for any new stores in the United States have a higher probability of being accepted than proposals for any new stores in Mexico?