Unformatted text preview: ernments by structuring the
financing of such investments as debt rather than as equity. Debt-service payments are legally enforceable claims, whereas equity returns (such as dividends)
are not. Even if local courts do not support the claims of the U.S. company, the
company can threaten to pursue its case in U.S. courts.
In spite of the preceding difficulties, foreign direct investment, which involves
the transfer of capital, managerial, and technical assets to a foreign country, has
surged in recent years. This is evident in the growing market values of foreign
assets owned by U.S.-based companies and of foreign direct investment in the
United States, particularly by British, Canadian, Dutch, German, and Japanese
companies. Furthermore, foreign direct investment by U.S. companies seems to
be accelerating. Review Questions
8–8 LG4 Why is it important to evaluate capital budgeting projects on the basis of
incremental cash flows?
What three components of cash flow may exi...
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