9. International capital budgeting 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 company can repatriate to the parent company. Companies use different techniques to work around the restrictions. One such method is transfer pricing, which involves the subsidiary company obtaining raw materials from: the parent company at a high cost so that there is less profit left to repatriate. O a local vendor at a very low cost so that there is more profit left to repatriate. the parent company at a very low cost so that there is more profit left to repatriate. Consider this case: Pellegrini Southern Inc. is a U.S.-based firm evaluating a project in Mexico. You have the following information about the project: The project requires a 170,000 peso investment today and is expected to generate cash flows of 60,000 pesos at the end of the next three years. The current U.S. exchange rate with the Mexican peso is 11.567 pesos per U.S. dollar, and the exchange rate is expected to remain constant. The firm's cost of capital is 9%, and the project is of average risk. What is the dollar-denominated net present value (NPV) of this project? (Note: Do not round your intermediate calculations.) $-1,488.39 $-1,410.06 -$1,566.73 $-1,645.07 When companies evaluate project investment in foreign nations, they also have to consider the additional risk that foreign projects are exposed to compared to domestic projects, such as exchange rate risk and political risk. Expropriation is one such risk where the government of a country takes away a private business from its owners without appropriately compensating the owners. Which of the following actions should companies take to prevent expropriation? Check all that apply. 0 Repatriate the maximum amount of cash from the subsidiary to the foreign government. O Use transfer pricing to buy raw materials from the parent company at the lowest possible price to minimize the profits the parent company can make. Finance the subsidiary with local capital. Structure the operations of the subsidiary such that the subsidiary derives much of its value only via its relationship or integration with the parent company