Hudson Co$.,$ a U$.$S$.$ firm, has a subsidiary in Mexico, where political risk has recently increased. Hudson's best guess of its future peso cash flows to be received has not changed. Explain how its valuation has changed as a result of the increase in political risk.

The valuation of the MNC is the present value of expected cash flows. The increase in risk results in a $-$Select$-$lowerhigherItem $1$ expected return, which $-$Select$-$reducesincreasesItem $2$ the present value of the expected future cash flows, and therefore its valuation has $-$Select$-$declinedincreasedItem $3.$