Financing Corporate Expansion (Scenario)
Intensity Games is an MNE based in San Francisco that manufactures a popular line of video game consoles and accessories. Intensity owns manufacturing facilities in China and Russia, where the components of the game consoles are manufactured and assembled before being shipped around the world. Intensity also owns numerous subsidiaries that manufacture game cartridges for Intensity game platforms. Intensity managers have determined that the firm needs to expand its Chinese facility to accommodate the increasing demand. The firm needs to raise several million dollars to finance the expansion. The financial managers of Intensity are discussing the various financing options available to the firm.
Which of the following, if TRUE, supports Intensity raising funds through intracorporate financing to expand its Chinese facility?
◦ Intensity would save money on transaction fees and tax deductible interest payments.
◦ Intensity's subsidiaries are struggling due to price wars with video game competitors.
◦ The Chinese government has offered Intensity a low-interest loan for the expansion.
◦ Eurobonds have been a popular choice among MNEs with facilities in China.
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Introduction to Corporate Finance, 5th