Differences in NPV of a proposed project between parent and subsidiary can arise from:

Question

Quizplus · Accepted Answer

Differences in NPV of a proposed project between parent and subsidiary can arise from cash flow or cost-of-capital asymmetries. These arise because the parent and subsidiary may have different operating costs, tax rates, and access to capital. The differences in cost of capital can also arise due to differences in creditworthiness, market risk perceptions, and other factors. Political risk, currency risk, and economic risk may also affect the NPV, but they are not necessarily specific to parent-subsidiary relationships. Cash flow and currency asymmetries are not the most appropriate options as they do not fully capture the potential sources of difference in NPV between parent and subsidiary.

Differences in NPV of a Proposed Project Between Parent and Subsidiary