Week 7
assignment
Discussion
Please review
the Power Point Slides titled “2016 Foreign Exchange.”
The following
statements comprise the topics for this week’s class discussion:
China is a
manufacturing superpower. Assume that you are CFO of an automobile manufacturer
looking to build a US$ 800 million plant
in China. You are discussing this project with your spouse, who is intelligent,
but has no background in finance.
1. Your discussion
should begin with a clear and logical step-by-step explanation of the theory
behind the concept of “required return” on proposed capital
investments. 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. 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. 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.
Post your
responses to each of the above questions in the Discussion area.
If you have an
interesting insight, please reply to a classmate. Otherwise, please read all classmate
posts. There is no need to post
agreement or ask questions.
