Skip to content

ACCA Strategic Professional · Advanced Financial Management · Strategic business and financial planning for multinational organisations

Brenmar plc, a UK-based multinational, is considering a $10m project in a country where the government may block remittance of dividends for up to three years. Which action by the senior financial adviser is most appropriate in evaluating the project?

The adviser should appraise the project on cash flows actually available to the parent, adjusting for the delayed remittance and considering lawful ways to extract value, such as royalties, management fees, intra-group loans, transfer pricing or local reinvestment. Ignoring blockage or using inflation or tax rates as discount rates is incorrect.

  1. ADiscount the cash flows at the host country's inflation rate only
  2. BIgnore the blocked funds because they belong to the subsidiary rather than the parent
  3. CEvaluate cash flows from the parent's perspective, considering the timing of remittable funds and ways to mitigate blocking, such as royalties, transfer pricing, management fees or local reinvestmentCorrect
  4. DUse the host country's tax rate as the discount rate

Explanation

Project appraisal for a multinational should be based on cash flows available to the parent, so the timing of remittance matters. Blocked funds can be mitigated by legitimate routes such as royalties, fees, intra-group loans, or reinvestment locally. The other options misuse rates or ignore the issue.

Did you get it right without looking?

One question tells you little. A timed set on Strategic business and financial planning for multinational organisations shows your real accuracy, how long you take and where you lose marks.

Practise Strategic business and financial planning for multinational organisationsFree diagnostic mock

More Strategic business and financial planning for multinational organisations questions