What are the relevant cash flows for an international investment: the cash flow produced by the subsidiary in the country where it operates, or the cash flows in dollars that it sends to its parent company?

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What are the relevant cash flows for an international investment: the cash flow produced by the subsidiary in the country where it operates, or the cash flows in dollars that it sends to its parent company?

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What are the relevant cash flows for an international investment: the cash flow produced by the subsidiary in the country where it operates, or the cash flows in dollars that it sends to its parent company?

Explanation & AnswerSolution by a verified expert

Explanation

A multinational corporation operates through subsidiaries in many countries. Though the business is diversified across the countries, most of the time the ownership of the business is divided among the domestic investors. The domestic investors require returns from business in terms of dollars, as they distribute their earnings in their home country in the form of dividends. So for the purpose of providing dividends to the foreign shareholders and returns to the investors, the dollar cash flows repatriated to the parent country are more relevant.

Verified Answer

For an international investment, cash flows in dollars that a subsidiary sends to its parent company are more relevant, than the ones generated by the company in its country of operation.

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