Question

One of the important components of multinational capital budgeting is to analyze the cash flows generated from subsidiary companies. Foreign governments often have restrictions on the amount of cash flows that the subsidiary comply ran repatriate to the parent company. Such restrictions are normally intended to:

a) Force mutational firms to reinvest earnings in the foreign country
b) Encourage large foreign denomination currency outflows
c) Expropriate the earnings that multinational firms generate in the foreign country

Answer 1

The important component of multinational capital budgeting is to analyze the cash flows generated from subsidiary companies. Foreign governments restrict the repatriation of cash flows to a) force multinational firms to reinvest earnings in the foreign country.

Step-by-step explanation:

The correct option is a) Force multinational firms to reinvest earnings in the foreign country.

Foreign governments often impose restrictions on the amount of cash flows that subsidiary companies can repatriate to the parent company. These restrictions are intended to ensure that multinational firms reinvest their earnings in the foreign country where they are operating. By reinvesting their earnings, multinational firms contribute to the growth and development of the foreign economy, which benefits both the host country and the company itself.

For example, a multinational company operating in Country X may generate significant profits from its subsidiary. However, if Country X imposes restrictions on the repatriation of cash flows, the company will be compelled to reinvest those earnings in Country X. This can lead to the establishment of new plants or the expansion of existing operations, thereby creating more job opportunities and contributing to the overall economic development of the country.