THUNDERBOLT

Thunderbolt

Thunderbolt

1- Referring to the Appraisal mentioned in the case study foreign investment (FDI) is a company controlled through ownership by a foreign company of foreign individuals. Control must accompany the investment; otherwise it is a portfolio investment. Companies want to control their foreign operations so that these operations will help achieve their global objectives. Investors who control an organization are more willing to transfer technology and other competitive assets. The idea of denying rivals access to resources is called the appropriability theory.

Governmental authorities worry that this control will lead to decisions contrary to their countries' best interests. Direct investments usually, but not always, involve some capital movement. There are two ways companies can invest in a foreign country. As at the end of its last financial year on 31 July 2010, the Statement of Financial Position of Thunderbolt showed that the company had 1,800 million ordinary shares of £1 each with a market price of 200 pence each, 8% secured bank loan of £600 million, and £1,875 million 6% December 2012 Convertible debenture valued at £96. The UK risk free rate of return is 6 per cent. The market rate of return is 12 per cent. Thunderbolt has a beta of 0.95 and the proposed subsidiary is estimated to have a beta of 1.25. The £800 million needed for the proposed foreign direct investment is to be raised in a manner that will not affect the current capital structure. Thunderbolt has an excellent credit rating and do not foresee any problem in raising the required finance locally or internationally. The directors of Thunderbolt plc have agreed that the calculations based on the above capital structure will result in a real after-tax weighted average cost of capital. (Shapiro, A.C., 2003 Pp. 12-15)

They can either acquire an interest in an existing operation or construct new facilities. Buying depends on which companies are available for purchase; difficulty to transfer resources or acquire resources for a new facility; the goodwill and brand identification; easier access to local capital; market does not justify added capacity; immediate cash flow. Build: Depends on difficulty to find a company to buy; little or no competition; local governments prevent acquisition; acquisition less likely to succeed (inefficient); local financing easier to obtain for building. Whether a company first transfers capital or some other asset to acquire a foreign direct investment, the asset is a type of production factor. Production factors: capital, technology, trademarks, managers, raw material.

If trade could not occur and production factors could not move internationally, a country would have to either forgo consuming certain goods or produce them differently, which in either case would usually result in decreased worldwide output and higher prices. In some cases, the inability to use foreign production factors may stimulate efficient methods of substitution. If finished goods and production factors were both free to move internationally, the comparative costs of transferring goods and factors would determine the location of production. However, as is true of trade, there are restrictions on factor movements ...