6. International capital budgeting One of the important components of multinational capital budgeting is to analyze the cash flows generated from subsidiary companies. Foreign governments have certain motivations to restrict the repatriation of earnings of multinational firms to the parent company. This implies that nt all earnings and profits generated at the subsidiary can be used by the parent ds or to reinvest. Thus, from the perspective of the parent company, the relevant cash flows for the parent company in the foreign investment analysis are the cash flows that: O The subsidiary sends back to the parent company O The subsidiary firm pays to the foreign government as taxes O The foreign government repatriates Consider this case: Pellegrini Southern Inc. is a U.S. firm evaluating a project in Australia. You have the following information about the project: The project requires an investment of AU$800,000 today and is expected to generate cash flows of AU$850,000 at the end of each of the next two years. The current exchange rate of the U.S. dollar against the Australian dollar is $0.7823 per Australian dollar (AU$). The one-year forward exchange rate is $0.8102/ AUS, and the two-year forward exchange rate is $0.8412/ AU$ . The firm's weighted average cost of capital (WACC) is 9.5%, and the project is of average risk