Respond to the given statements
Problem 1. Develop some of the motives for Direct Foreign Investment.
Direct Foreign Investment can be viewed as one of the alternative means available to a business for picking up a particular opportunity and for acquiring an internationally nontransferable foreign asset in an indirect way. Some of the motives that for Direct Foreign Investment, would be resource seeking, MNEs that are looking to gain resources that are not available within their home country like natural resources or raw materials that are available at a lower cost. Market seeking would also be how an MNE may invest in a foreign country to exploit the possibilities granted by markets of greater dimensions. Efficiency seeking is a motive for MNEs this is when a business takes advantage of difference in the availability and costs of traditional factor endowments in different countries and they take advantage of the economies of scale and scope and of differences in consumer tastes and supply capabilities. It appears that when a host country or foreign business can deliver a source of new technologies, wealth, developments, products, and management skills at a lower cost these would be good reasons for Direct Foreign Investments. Additional motives for Direct Foreign Investment would be to take advantage of lower costs in labor and transportation costs.
Problem 2. Develop some of the motives for Direct Foreign Investment.
Direct foreign investment is when a company from one country makes a physical investment in building a factory in another country. Some of the motives for direct foreign investment include providing a firm with new markets and marketing channels, cheaper production facilities, access to new technology, products skills and financing. The host country or foreign firm can provide a source of new technologies, capital, processes, products, organizational technologies and management skills. Direct foreign investment can provide economic development in a foreign company.
Problem 3. Describe the capital budgeting steps that would be necessary to determine whether a proposed project is feasible as related to some specific situation.
Capital investments are long-term investment in which the assets involved have useful lives of multiple years. Capital budgeting involves identifying the cash inflows and cash outflows rather than accounting revenues and expenses flowing from the investment.
The steps involved in capital budgeting are:
1) Identify long-term goals of the individual or business
2) Identify potential investment proposals for meeting the long-term goals
3) Estimate and analyze the relevant cash flows of the investment proposal
4) Determine financial feasibility of each of the investment proposals by using the capital budgeting methods
5) Choose the projects to implement from among the investment proposed outline
6) Implement the projects in line 5
7) Monitor the projects implement as to how they meet the capital budgeting projections and make adjustments when needed.
Problem 4. Describe the capital budgeting steps that would be necessary to determine whether a proposed project is feasible as related to some specific situation.
Capital budgeting decisions are the most important investment decision made by business. Capital investments are important because they involve substantial cash and once made, are not easily reversed. Some of the capital budgeting steps that would be necessary to determine whether a proposed project is feasible as related to a specific situation would begin with the need to estimate the amount of product that would need to be sold to a distributor. Once the long term goal has been identified the next step would be to identify the value of the investment, this investment would be forecasted for each month so that the dollar cash inflows can be estimated. Once this estimate has been completed and analyzed of what the relevant cash flows will be of the investment the next step would be to review the cash outflows from the expenses from performance within production. There needs to be a determination of financial feasibility of the investment proposals by using capital budgeting methods. Once the dollar cash inflows and outflows are estimated, they can be used to derive the net cash flows. The net cash flows can be discounted to determine the present value of net cash flows. Finally, the projects need to be monitored and adjustments made as they are needed.
5. Some assume that fiscal incentives such as lower taxes for multinational corporations and market preferences are the main reasons for foreign owned companies to invest in the country. Do you agree?