Debt service payments are legally enforceable claims

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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 8–5 8–6 8–7 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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