Livingston Co. has a subsidiary in Korea. The subsidiary reinvests half of its net cash flows into operations and remits half to the parent. Livingston's expected cash flows from domestic business are $100,000, and the Korean subsidiary is expected to generate 100 million Korean won at the end of the year. The expected value of the won is $.0012. What are the expected dollar cash flows of Livingston Co.?
A) $100,000
B) $200,000
C) $160,000
D) $60,000

Question

Quizplus · Accepted Answer

To calculate the expected dollar cash flows of Livingston Co., we need to convert the Korean won to dollars.

First, we need to find out the total amount of Korean won that the subsidiary is expected to generate:

100 million Korean won * $.0012 = $120,000

Since the subsidiary reinvests half of its net cash flows into operations, it will remit half to the parent:

$120,000 / 2 = $60,000

Therefore, Livingston Co. can expect to receive $60,000 from its Korean subsidiary. Adding this to the expected cash flows from domestic business ($100,000), the total expected dollar cash flows of Livingston Co. are:

$60,000 + $100,000 = $160,000

Thus, the best choice is C.