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CA Final · Advanced Financial Management · International Financial Management

Gopal Textiles Ltd (India) has a US subsidiary whose project generates distributable cash of USD 200,000 for the year. The entire amount is remitted as dividend, the US imposes 10% withholding tax on remittance, and no further Indian tax applies. The rate is ₹82/USD. From the parent's perspective, what is the relevant rupee cash flow?

The relevant parent cash flow is ₹1,47,60,000. Capital budgeting from the parent's viewpoint counts only cash received after withholding tax: USD 200,000 less 10% leaves USD 180,000, which at ₹82 equals ₹1,47,60,000. Ignoring the withholding tax would overstate it at ₹1.64 crore.

  1. A₹1,64,00,000
  2. B₹1,47,60,000Correct
  3. C₹1,55,80,000
  4. D₹1,82,22,222

Explanation

Parent's perspective counts only cash actually received. After 10% withholding tax, remittance = 200,000 × 0.90 = USD 180,000; × ₹82 = ₹1,47,60,000. Option A ignores withholding tax. Option C deducts only USD 10,000 rather than 10% of the amount.

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