Which of the two financing arrangements would you recommend for the parent? Assess

the forecasted NPV for each exchange rate scenario to compare the two financing

arrangements and substantiate your recommendation.

b) In part 'a' above, an alternative financing arrangement of partial financing by the

subsidiary was considered, with an assumption that the required rate of return by the

parent would not be affected. Is there any reason why the parent's required rate of

return might increase when using this financing arrangement? Explain. How would you

revise the analysis in the previous question under this situation? Note: This question

requires discussion, not analysis.

c) Would you recommend that North Star Company establish the subsidiary even if the

withholding tax is 20 percent?

d) Assume that there is some concern about the economic conditions in Singapore, which

could cause a reduction in the net cash flows to the subsidiary. Explain how Excel could

be used to reevaluate the project based on alternative cash flow scenarios. That is, how

can this form of country risk be incorporated into the capital budgeting decision? Note:

This question requires discussion, not analysis.