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 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 subsidiary's cash flows into dollars.

The subsidiary generates 100 million Korean won, which is equivalent to 100,000,000 * 0.0012 = $120,000 in dollars.

The subsidiary reinvests half of its net cash flows into operations, which means it retains $60,000 (half of $120,000) and remits $60,000 to the parent.

Therefore, Livingston Co.'s expected cash flows from the Korean subsidiary are $60,000.

Adding this to the expected domestic cash flows of $100,000, we get $160,000 as the expected dollar cash flows of Livingston Co.

Hence, the best choice is C.