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If the return on the forced reinvestment in the foreign country is less than the required...

  1. If the return on the forced reinvestment in the foreign country is less than the required rate of return on the project, blocked funds may penalise the project

    True

    False
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Answer #1

TRUE

If the return on the forced reinvestment in the foreign country is less than the required rate of return on the project, blocked funds may penalise the project.

Example: The required rate of return on the project = 12%

The return on the forced reinvestment = 6%

Then this results in a negative net present value to the company.

Blocked funds are the funds that can only be reinvested in the foreign company and that cannot be repatriated to the parent company. For the company to benefit the reinvestment in the foreign country should earn a return greater than the company's required rate of return.

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