Question: 1 4 . Stanton Inc. is considering pursuing a direct foreign investment ( DFI ) project in Romania. Stanton's cost of capital is 1 2

14 .

Stanton Inc. is considering pursuing a direct foreign investment

(

DFI

)

project in Romania. Stanton's cost of capital is

12 %

and the required rate of return on the Romanian project is

18 % .

Assume the host county political conditions changed and Romania now requires that earnings generated by the subsidiary be reinvested locally for all operating years

(

.

.,

funds can only be remitted in the final year when the project is divested

) .

Subsidiary uses the blocked funds to purchase marketable securities that are expected to yield

15 %

annually after taxes. Based on the information given, how will the blockage of funds affect the NPV of the project compared to the scenario where such restrictions do not exist?A

.

PositivelyB. NegativelyC. Neither positively nor negatively

-

Stanton is indifferent between the two scenarios

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