Duke PLC is a large, all equity financed multinational company with a current cost of capital of 10%. Its directors are contemplating the establishment of a subsidiary in China, whose currency is the Yuan. Duke has previously exported its products to China, but these exports have become less competitive in price because of rising UK costs and the increased strength of sterling relative to the Yuan. The government of China are anxious to encourage foreign investment and are considering offering tax benefits to Duke PLC.
Students are required to:
a) Critically appraise the methods of finance that are available to finance this type of project;
b) Analyse the effects of this project in terms of Duke’s cost of capital.
Students should produce their assignment in a report format, 1,500 words, +/- 10%.