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hi everyone,
i read BPP text chapter 8 ” International investment and financing decisions” and in section 3 ”Forecasting cash flows from overseas projects” , it mentions about ”When a multinational company sets up a subsidiary in another country to which it already exports, the relevant cash flows for the evaluation of the project should take into account the loss of export earnings”.
Why we have to take account into the loss of export earning? and when the loss of export earning could occur?
Could anyone explain me about it?Thank beforehand.
SambathThink of it as an opportunity cost. If you settle a subsidiary in the foreign country, then you stop exporting there and obviously lose those earnings. I hope that makes sense.
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