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Good afternoon John,
Can you please advise me on the below:
1. What is the correct approach to inter-company loan from parent to oversees subsidiary established – shall tax shield on such loan be included in finance effect? Or there is no effect on Group cash flows at all…and is here a parallel between inter-company trade and inter-company loan
2. I went through management fees in one of questions which were not considered cash flow at all and not included in basic NPV calculations but I am thinking about royalties which appear twice in questions on international inv appraisal- once in oversees subsidiary and once in parent cash flow – is not it the same case?
Thank you,
Sergey
1. The tax shield won’t be included unless the parent company is actually taking a loan. It could affect the cash flows, but only if the overseas company was paying interest to the parent, but that would depend on the tax rules (which you would have to be told about).
2. Without seeing the actual question, it is difficult to answer. Normally, if the subsidiary were actually paying a fee to the parent, then I would expect to see it as an outflow in the subsidiaries cash flows, and an extra inflow in the parent’s cash flows.
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