Week 7 discussion
1. Explain
how cost of equity, cost of debt, WACC, and allowances for various risk factors
are involved in determining the “required return” on proposed
international capital investments. Please write at least one paragraph for each
step in the WACC process.
2. 2.
Discuss each single one of the main risk factors that should be allowed for (in
addition to WACC) in order to determine the appropriate required return on this
capital investment opportunity. Update for changes in government and policy in
the past 12 months. Do these changes
increase or decrease risk? Is the
overall risk for each element low, medium, or high.?
3. 3.
Make a reasonable estimate of the required return, starting with a 12% weighted
average cost of capital for the U.S. auto manufacturer, and adding reasonable
estimated percentages for each of the separate risk elements you can foresee.
Write a paragraph for each risk factor, justifying your choice of the numerical
addition to risk.
