Internal rate of return is used to evaluate the attractiveness of a project or investment. Ifthe IRR of a new project exceeds a company’s required rate of return, that project isdesirable. If IRR falls below the required rate of return, the project should be rejected.The two tools have different reinvestment rate assumptions. The NPV has noreinvestment rate assumption; therefore, the reinvestment rate will not change theoutcome of the project. The IRR has a reinvestment rate assumption that assumes that thecompany will reinvest cash inflows at the IRR's rate of return for the lifetime of theproject. If this reinvestment rate is too high to be feasible, then the IRR of the project willfall. If the reinvestment rate is higher than the IRR's rate of return, then the IRR of theproject is feasible.Reference:Laan, E., & Teunter, R. (2000). Average costs versus net present value: A comparison formulti source inventory models. Magdeburg: Otto von Guericke Univ., FEMM.Week6 dq 2Capital budgeting can be affected by exchange rate risk, political risk, transfer pricing,and strategic risk. Explain how these factors may and can impact capital budgeting.

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Reference:Johnson, R. (1970). Capital budgeting. Belmont, Calif.: Wadsworth Pub.Political risk can be partly counteracted by sharing risks via partnerships with localbusinesses that will have a better understanding of how to most efficiently and safelyconduct business in that specific country. Discount rates cost of capital should reflect thelevel of political risk. In analyzing a foreign investment opportunity, the country risk canbe handled in at least two ways. The first method is to increase the discount rateapplicable to foreign projects in countries where political and economic risks areperceived as high. The adjustment is somewhat arbitrary, however, and may lead toimproper decision making. An alternative method of incorporating country risk analysis