International Business Finance Case Study Example | Topics and Well Written Essays - 1500 words

International Business Finance - Case Study Example There is transfer of technology between the subsidiaries and the parent firm in the joint venture and the industrial output of the joint venture. Therefore the following can be noted from the joint venture under the strategic option 1. In this multinational capital budgeting there are various factors as well as assumptions that were taken into consideration to determine the expected returns from the joint venture from the parent’s firm perspective. First and foremost the exchange rates fluctuations were taken into account especially when converting the subsidiary earnings into the parent firm’s reporting currency. Given that is challenging to precisely estimate the rates of exchange rates, the determination of the expected returns in pounds were established using the spot exchange rate of  £0.8410/â‚ ¬. Besides, the cost of inflation was taken into account which was charged on the cost of operations to incorporate the depreciation rates and the interest rates on loans based in Germany borrowing rates. Even though the prediction of costs or price completely takes into account the inflation, the rates of inflation rates at tikes can be volatile from one year to another for some states (Madura, 201 1; p. 49). Hence the cost of inflation from the Germany perspective was taken to be 2.5%. Lastly, the financial arrangements were put into account. These include the costs of finance which is captured by the rate of discount and the taxation rate. Nonetheless, when the foreign based projects are partly financed using the subsidiaries in the foreign nations, a more precise strategy is applied to distinguish the investment in the subsidiary and openly take into account the loan repayment of the foreign loans as cash outflows. Moreover, the returns from the Germany were not taxed due to the double taxation treaty that exists between Germany and United Kingdom. The following calculations can be noted under strategic option One; the