Question

6. Bronco Co. is a U.S.-based MNC that has subsidiaries in Spain and Germany. Both subsidiaries frequently remit their earnings back to the parent company. The Spain subsidiary generated a net outflow of €5,000,000 this year, while the German subsidiary generated a net inflow of €4,500,000. What is the net inflow or outflow as measured in U.S. dollars this year? The exchange rate for the euro is $1.159.

Answer 1

Cash outflow of $579,500

Step-by-step explanation:

Net cash flow is the sum of all cash inflow and outflows of the company.

In this question the company has cash outflow from Spain and inflow from Germany.

As per given data

Cash flow from Spain subsidiary = €5,000,000 outflow

Cash flow from German subsidiary = €4,500,000 inflow

Net cash flow to parent company = - €5,000,000 + €4,500,000

Net cash flow to parent company = - €500,000

The currency is converted using the exchange rate of $1.159 per euro.

Net cash Flow in U.S. dollars = - €500,000 x $1.159 per euro

Net cash Flow in U.S. dollars = - $579,500