Appraisal of foreign direct investment Essay Example | Topics and Well Written Essays - 3500 words

Appraisal of foreign direct investment - Essay ExampleA review of capital structure of commingle plc has also been undertaken.Foreign direct investment implies transfer of capital, managerial, and technical assets by a multinational entity from the country where it is based to the country where investment is made. FDI may pack participation by the host country in equity capital, managerial control, and operational control. FDI decisions be complex issues as FDI formulates are subjected to a variety of take chances factors. For the case under study the FUSE plc has set up certain criterion for taking a decision for investment in a causation generating project in Pajistan. The basic rule for investment decisions is that the internal rate of return on the project should be greater than the weighted marginal terms of the investment. The rule dictates that accept projects up to the point at which the marginal return on an investment equals its weighted cost of capital. Beyond that point, its investment return lead be less than its capital cost. (Lawrence J. Gitman, page 519)i However, the investment criterion of FUSE Plc for investment in emerging market like Pajistan is three fold as underAs per above criterion of investment, the computations of hurdle rate become imperative. Hurdle rate is the minimum acceptable rate of return for a proposed project to merit investment. Usually, the hurdle rate is the opportunity cost of capital or the best return the company could get by investing the capital elsewhere. To be financially justifiable, a projects internal rate of return must exceed the hurdle rate set by the firm for much(prenominal) project.(Paul M. Swamidass, page 286)iiFUSE plc has set its hurdle rate for Pajistan project at 5% above the weighted cost of average capital to the company. Accordingly computations of WACC are important to devise the required hurdle rate. It is important to note that cost of capital is the rate of return that a firm must ear n on the projects, in which it invests to maintain the