When an MNC Forms a Foreign Subsidiary and That Subsidiary

question 11

Multiple Choice

When an MNC forms a foreign subsidiary and that subsidiary is eligible for subsidies in the country where it will operate,how is the capital budgeting process for that subsidiary and its project affected?

• A)Local subsidies are compensated for in NPV calculations,so no additional consideration needs to be given in the capital budgeting process.
• B)Since local subsidies are subject to political risk and can be taken away as easily as they are granted,local subsidies are not considered in the capital budgeting process.
• C)When local subsidies are available,the capital budgeting process is often altered to include consideration of the cash flows that will be generated by those subsidies.
• D)Local subsidies are generally not available to subsidiaries that will send their profits to the MNC parent,so local subsidies are not considered in the capital budgeting process by MNCs.

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