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

First, we need to convert the cash flows from the Korean subsidiary into US dollars:

100,000,000 KRW * 0.0012 USD/KRW = 120,000 USD

The subsidiary reinvests half, so Livingston Co. receives:

120,000 / 2 = 60,000 USD

Adding this to the expected domestic cash flows:

100,000 + 60,000 = 160,000

Therefore, the expected dollar cash flows of Livingston Co. are $160,000.