Cash Flows at Subsidiary and Parent Level
flows of the project 11 the subsidiary level and the level of the parent Finn. The difference arises primarily due to tax regulations affecting repatriation to the parent), exchange controls, inflation as well as interest rates affecting the exchange rate and so on.
he difference between the two sets of cash flows also arises on account of (he fad that the parent company usually"charges management fees, fees for technology transfer and royalties on production sales from its subsidiary units. As per' the incremental analysis, these expenses are ignored. However, in estimating the true profitability of the subsidiary unit, these expenses merit recognition as these are project expenses at the level of subsidiary, Prostheses expenses- constitute cash inflows incomes at he rent' level and, hence, need to be Counted. In fact,
the principle (as enunciated by Shapiro) can be any cash inflow back to the investor (parent company in the present context) should be taken into account in cash Inflows for the purpose of determining NOV f the project. In respect of other incomes, the parent : transfer costs (such as withholding taxes rainier use as these are the only access the fun D available to it Assessing true profitability of an independent subsidiary company in terms of local cu where it is located, the determination of the CAT L akin o a domestic project as show Format 36.2. Cash inflows to the parent company are depicted in Nonfat 36.3