How Is a Foreign Subsidiary Different from a Foreign Branch

question 22

Multiple Choice

How is a foreign subsidiary different from a foreign branch of a domestic corporation?

• A) Subsidiaries always generate more foreign source income than branches do.
• B) The subsidiary is a company incorporated in the foreign country, whereas a branch is not a separate corporation.
• C) A subsidiary is created to manufacture and distribute products in foreign markets, whereas a branch's only function is sales in the foreign market.
• D) The income of a subsidiary is taxable by the country where it is located, but branch income is not subject to tax by the country where it does business.

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Definitions:

NPV

Net Present Value, a calculation used to determine the present value of a series of future cash flows minus the initial investment, utilized in capital budgeting to assess the profitability of an investment.

Least-Cost Decision

A decision-making process focused on selecting the option that requires the lowest financial outlay while still achieving the desired result.

Economic Profit-Maximising

The strategy of adjusting the output and pricing of goods or services to achieve the highest possible profit, taking both explicit and implicit costs into account.

Total Revenue

The entire amount of income generated by the sale of goods or services before any expenses are subtracted.