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.

Three questions about international finance

International capital investments require a return of at least 5%. This is determined by the costs of equity, debt and the weighted average cost of capital (WACC). Since there are more risks associated with investing in shares, the cost equity represents what shareholders can expect to get as a return on their investment. However, debt costs are what the company borrows money for and it is generally lower than equity cost because the creditors take less risk.

WACC considers both debt and equity financing. Each component is weighed according to market value. Investors can see a picture of the expected return before they commit their money to projects or investments.

These are just a few of the basic elements. You should also consider other risk factors like currency fluctuations, political instability, and regulations regarding return of profits. All these factors should be taken into consideration when making decisions about international investments – since they can significantly affect expected returns over time. Ultimately, having accurate information about these variables helps investors make informed decisions which balance potential rewards against possible pitfalls – allowing them to maximize their returns while minimizing exposure to unnecessary risk.

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