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 very low cost so that there is more profit left to repatriate. the parent company at a high cost so that there is less profit left to repatriate. a local vendor at a very low cost so that there is more profit left to repatriate. Consider this case: Sebrele Enterprises 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$987,000 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 $0.7795 per Australian dollar (AUS). The one-year forward exchange rate is $0.8088/AUS, and the two-year forward exchange rate is $0.8234/AU$. The firm's weighted average cost of capital (WACC) 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.) $405,390 $450,433 $563,041 $540,520 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. Finance the subsidiary with local capital. Obtain insurance against economic losses from expropriation. Use transfer pricing so that the subsidiary company pays maximum taxes to the foreign government. Repatriate the maximum amount of cash from the subsidiary to the foreign government. Streep Inc. is a U.S.-based multinational firm with a subsidiary in Switzerland. Last week, Streep created its periodic financial statements, and the subsidiary had SFr 50,000 worth of inventory on its balance sheet. Streep translated the value of inventory using the spot exchange rate at that time of $0.8153 / SFr and recorded that value on its consolidated balance sheet. However, this week the exchange rate changed dramatically to $0.9025 / SFr. The subsidiary still has the same amount of inventory (valued at SFr 50,000). If the firm were to create a new consolidated balance sheet and translate the value of its inventory at the new spot exchange rate, what would happen to the dollar value of inventory? It would increase by 4,796. It would increase by $4,360. It would decrease by 5,232. O It would decrease by $4,360. The change in inventory value was created purely by accounting and exchange rate factors, because the subsidiary still has the same inventory and assets in place. However, this change would affect Streep's consolidated financial statements and ratios. Assuming no other changes occurred, what effect would this have on Streep's current ratio? O The current ratio would increase. The current ratio would decrease