Interaction between Financing and Investment
Response to the following problem:
Charleston Corp. is considering establishing a subsidiary in either Germany or the United Kingdom. The subsidiary will be mostly ?nanced with loans from the local banks in the host country chosen. Charleston has determined that the revenue generated from the British subsidiary will be slightly more favorable than the revenue generated by the German subsidiary, even after considering tax and exchange rate effects. The initial outlay will be the same, and both countries appear to be politically stable. Charleston decides to establish the subsidiary in the United Kingdom because of the revenue advantage. Do you agree with its decision? Explain.