Cor

Cash Flows Generated by Subsidiary

After-Tax Cash Flows to Subsidiary
Reta
pora
Cash Flows Remitted by Subsidiary
After-Tax Cash Flows Remitted With
by Subsidiary
ined
te
Conversion
of
Funds
hold
Cash Flows
to Parent
Earn
PaCurrency
Taxe
to Parents
ing
ings
re
s
Tax
by
nt
Paid
Paid
effected and the end results would be different when it is handed over to parent.
Sub
to
to
If the Euro appreciation occurs nearly in future it will benefit the parent as sidia
the amount which
Host
Host
Gov
is earned from the project will be converted into dollars while sending, its worth ry
will be more than
Gov
ern
the normal amount. Its especially true in the case if a large amount of outcomeern
earned from the
men
men
project is sent to parent through remittance.
t
If the amount of euro is decreased in future it would have a bad impact tbecause when the

Evaluation of project from parents perception is

apposite because while allocating funds the net after-tax
Cash inflow result may vary from those to subsidiary.
Difference in cash flow occurs due to: extreme remittance,
Tax discrepancy, Commercial taxes paid to the government.
If a project is gaining positive net value for the parent, it will enhance companys worth.
From the figure it is clear that if the subsidiary is calculating the cash flow how it will be

amount is converted into dollars and sent through remittance it would worth less and specially in that
case when the amount is quite large is sent to parent.
Its not a good case if the project is divested because it will not cover its initial expense, if
Leigh is offered an offer that is above the estimated present value of the project then he should divest the
project.
If the cash flow is less, than the risk may turn down. The risk would increase in such case if
more organizations start doing business in Germany; the situation will become more extreme due to
competition. If the political environment starts to support the organizations for business it would
generate more risk.
Year

Investment done

Cash flow operation

Salvage Value
Total Cash flow

2
5

Rate

8,700

CF to parent

$1,034,483

PV of parent CF
$433,978.15
NPV
$91,339.03

9,135

10,071

$328,407.23 $312,760.63 $695,065.04

$1,034,483
$1,034,483

9,592

$280,689.94 $228,475.88

$753,793.06

$525,317.18

As we can see that the net project

value of this project is negative so in this case, Brower should not accept the project. The uncertainty is
due to the difference in rate value of the project.
Year
Investment

Operating CF

Reclaimed price
Total CF
Rate
CF to parent
PV of parent CF
$502,367.11
NPV
$14,519.78

5
9

3
8,700

3
8,700

$1,034,483

7
8,700

8,700

$344,827.59 $344,827.59 $804,597.70

$1,034,483 $294,724.44 $251,901.23

$1,034,483 $739,748.56

$487,847.33

From the results we can see that the net value of the project is positive the reason is because the
value of cedi remains constant. If the net value is positive, than the borrower should take the
project. In most of the cases the result is not defined, so in that case the borrower had to check the

exchange rates. The decision of taking or not taking the project is on that if the project has its
exchange rate.