Final answer:
The statement is false; a reduced required return on an MNC's foreign investments typically indicates lower risk or better investment conditions, leading to a potentially higher valuation of the MNC, not lower.
Step-by-step explanation:
The statement given to the student is false. The valuation of a multinational corporation (MNC) is not reduced if the required return on its investments in foreign countries is reduced. In reality, when the required return on investments is lower, this generally indicates that there is a lower level of risk or a more favorable investment climate in the foreign country, which can increase the value of an MNC.
According to investment principles, an MNC's valuation is based on the present value of its expected future cash flows. The discount rate used to calculate the present value is the required return. When the required return is lower, the present value of future cash flows is higher, which can increase the company's valuation. Additionally, lower required returns in a country can lead to a depreciation of that country's currency, which may impact the MNC's valuation depending on its exposure to currency fluctuations.
Understanding these concepts is essential for making informed investment decisions andpredictions about currency movements and corporate valuations.