For purposes of international capital budgeting, which of the following statements is NOT true?
A) Managers must evaluate political risk because political events can drastically reduce the value or availability of expected cash flows.
B) Parent cash flows must be distinguished from project cash flows. Each of these two types of flows contributes to a different view of value.
C) An array of nonfinancial payments can generate cash flows from subsidiaries to the parent, including payment of license fees and payments for imports from the parent.
D) All of the above are true statements.
Answer: D
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Stinehelfer Beet Processors, Inc., processes sugar beets in batches. A batch of sugar beets costs $56 to buy from farmers and $13 to crush in the company's plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $24 or processed further for $12 to make the end product industrial fiber that is sold for $31. The beet juice can be sold as is for $43 or processed further for $29 to make the end product refined sugar that is sold for $91. What is the financial advantage (disadvantage) for the company from processing the intermediate product beet juice into refined sugar rather than selling it as is?
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