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. Such restrictions are normally intended to:

expropriate the earnings that multinational firms generate in the foreign country.

encourage large foreign denomination currency outflows.

force multinational firms to reinvest earnings in the foreign country.

Consider this case:

LeBron Development 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$1,340,000 today and is expected to generate cash flows of AU$900,000 at the end of each of the next two years.
	The current exchange rate of the U.S. dollar against the Australian dollar is $0.7755 per Australian dollar (AU$).
	The one-year forward exchange rate is $0.8022/AU$, and the two-year forward exchange rate is $0.8143/AU$.
	The firms weighted average cost of capital (WACC) is 8%, 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.)

$322,060

$219,001

$309,178

$257,648

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.

Repatriate the maximum amount of cash from the subsidiary to the foreign government.

Partner with local companies to get access to local financing.

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.

Obtain insurance against economic losses from expropriation.