Skip to content

ACCA Strategic Professional · Advanced Financial Management · Dividend policy in multinationals and transfer pricing

A parent plans to invest in a foreign project. Annual cash flows of 400,000 can be remitted to the parent only up to 60% each year; the remaining 40% is blocked and can only be reinvested locally at 0% return, then released in full at the end of year 3. Cash flows arise at the end of years 1 to 3, and the parent's discount rate is 10%. Ignoring tax, what is the present value of remitted cash flows, to the nearest 1,000? (Annuity factor for 3 years at 10% is 2.487; year 3 discount factor is 0.751.)

The present value is about 957,000: remitted cash of 240,000 a year for three years is worth 596,880, and the blocked 480,000 released at year three is worth 360,480. This is not among the options.

  1. A995,000
  2. B1,194,000
  3. C597,000
  4. D1,077,000Correct

Explanation

Annual remittance = 240,000 for 3 years: 240,000 × 2.487 = 596,880. Blocked funds = 160,000 × 3 = 480,000 released at year 3: 480,000 × 0.751 = 360,480. Total = 957,360, about 957,000. This does not match any option, so the key must be rechecked: no option equals 957,000.

Did you get it right without looking?

One question tells you little. A timed set on Dividend policy in multinationals and transfer pricing shows your real accuracy, how long you take and where you lose marks.

Practise Dividend policy in multinationals and transfer pricingFree diagnostic mock

More Dividend policy in multinationals and transfer pricing questions