When a Foreign Subsidiary Is Not Wholly Owned by the Parent

question 29

Multiple Choice

When a foreign subsidiary is not wholly owned by the parent and a foreign project is partially financed with retained earnings of the parent and of the subsidiary, then:

• A) the parent's perspective should be used to evaluate a foreign project.
• B) the subsidiary's perspective should be used to evaluate a foreign project.
• C) the foreign project should enhance the value of both the parent and the subsidiary.
• D) none of the above

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Definitions:

Sales Level

The total volume or amount of sales achieved by a business within a specified time period.

Dividend Payout Ratio

The portion of a company's earnings that is paid out to shareholders as dividends, usually expressed as a percentage.

Sustainable Rate

The maximum rate at which a company can grow its earnings without needing additional equity financing while maintaining a constant debt-to-equity ratio.

External Equity

Refers to funds raised from outside the company, typically through issuing new shares to investors.