Ali is a reputable pharmaceutical firm in new drugs and vaccine development. Its market value today is $640 million. The firm operates its business in the UK. However, it plan to enter the overseas market by take-over or joint venture for the upcoming 2 years. The firm possess investment portfolios in UK shares as well as corporate and government bonds. The purpose of this portfolio is to obtain financial returns to finance its overseas business expansion. The firm's portfolio is as the following:

Asset type

Value ($ million)

Average previous year annual returns (%)

UK shares

12.1

13

US shares

8.3

11

Corporate bonds in UK

4.2

7.1

Long-term government bond in UK

10.3

6.3

Short-term government bond in UK (3-months)

2.1

5.0

Roughly, 20% of the UK shares are in small firm's equities. Some of these equities trade at the Alternative Investment Market (AIM). The mean return on all UK shares for the previous year was 11%. In US shares, it was 10.4%. There is no taxation involved.

Required:

Critically discuss the advantages and disadvantages of investing in this kind of portfolio within the context of the situation encountered by Ali.

Answer rating: 100% (QA)

Investing in the described portfolio for financing overseas business expansion presents both advantages and disadvantages for Ali Lets analyze them within the context of Alis situation Advantages 1 Di... View the full answer