What Is a Greenfield Investment? How Does It Compare to an Acquisition

question 70

Essay

What is a greenfield investment? How does it compare to an acquisition? Which form of FDI is a firm more likely choose? Explain your answer.

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Definitions:

Fixed Manufacturing Overhead

Costs associated with manufacturing that do not vary with the level of production, such as rent, salaries of managers, and depreciation of equipment.

Absorption Costing

A costing method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed overheads - in the cost of a unit of product.

Variable Costing

A costing method that includes only variable production costs—direct materials, direct labor, and variable manufacturing overhead—in the cost of goods sold and reports fixed overhead as an expense of the period.

Fixed Manufacturing Overhead

Indirect production costs that remain constant regardless of the level of goods or services produced.