Financing Decision The subsidiaries of Forest Co. produce goods in the United States, Germany, and Australia and sell those goods in the areas where they are produced. Foreign earnings are periodically remitted to the U.S. parent. As the euro’s interest rates have declined to a very low level, Forest has decided to finance its German operations with borrowed funds, which will replace the parent’s equity investment. Forest will transfer its equity investment in the German subsidiary to its Australian subsidiary. These funds will be used to pay off a floating-rate loan, as Australian interest rates have been high and are rising.
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