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China Is a Manufacturing Superpower

In: Business and Management

Submitted By Snowersk8
Words 1259
Pages 6
Livingstone, J. (2008). Foreign exchange. [PowerPoint]. Retrieved from https://learn.umuc.edu/d2l/le/content/130055/viewContent/4741270/View

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.
The required rate of return is the minimum annual percentage earned by an investment that will encourage individuals or companies to invest into a project.
My company, as potential investors in a foreign market, will use the required rate of return to decide whether or not the associated risk is worth the investment. Companies make capital investments to earn money. The required rate of return on proposed capital investments is the amount required by investors before they decide to commit money to an investment at a certain level of risk. If the expected return does not exceed the required return, then we would choose not to invest.
The cost of equity, cost of debt, WACC and allowances for risk factors are all involved in determining the required return on international capital investments such as this. The Cost of equity is defined as dividends per share for next year/current market value of the stock plus growth rate of dividends. More simply the cost of equity is the rate of return a company pays to investors to compensate for the risk they took from

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