Question

In: Finance

Which of the following is true about the NPV of a foreign subsidiary's project?


Which of the following is true about the NPV of a foreign subsidiary's project?

a. administrative fees charged by the parent have no impact from the subsidiary fs perspective,

b. withholding taxes have no impact.

c. it can be negative from the subsidiary fs perspective, while can be positive from the parent fs point of view.

d. the same cost of capital needs by the parent needs to be used.

Solutions

Expert Solution

The correct answer is Statement A

The Net present value is the present value of all the cash flows that the project is going to generate over the years less initial investment. The discount rate is the cost of capital that the company pays to finance the capital.

The net present value of parent and subsidiary would be same though the cost of capital can be different. Therefore, Optionn D is Incorrect while administrative charges of parent would have no impact on subsidiary as both are separate entity. Therefore, Option A is correct.

jeff jeffy answered 2 years ago
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