The value of a particular foreign subsidiary to its parent company may bear little relationship to the subsidiary's profit-and-loss statement. The strategic purpose or nature of a foreign unit may dictate that some of the value of the unit will show up in the form of higher profits in other affiliates.
a. Describe three ways in which the incremental cash flows associated with a foreign unit can diverge from its actual cash flows.
b. Describe two strategic rationales for establishing and maintaining a foreign subsidiary that will lead to higher profits elsewhere in the corporation but will not be reflected in the subsidiary's profit-and-loss statement.