AMBA 630 Week 7 Discussion Introduction to International Finance Actions for ‘Week 7 Introduction to International Finance’ Discussion 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 t5he 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. Helpful Resources A useful website giving current and historical rates of exchange for foreign currency is http://www.oanda.com/ Useful information from the World Bank on the ease of doing business in many different countries: http://doingbusiness.org/reports/global-reports/doing-business-2010/ Also see the Index of Economic Freedom:http://www.heritage.org/index/Default.aspx ***************** Here are some instructions for the assignments in this course. â€¢ Always be sure to support your answers with facts and logical reasoning. Never guess or speculate. Avoid subjective opinions. Economics, finance and accounting are fact-based and your answers should be fact-based as well. Data driven analysis always trumps guesswork. â€¢ In your answers to all assignments, show that you have read the guidance materials and readings (quote them) and that you have understood, and can apply, the key concepts and methods (demonstrate it). â€¢ Be sure to show all your calculations for every numerical answer. That helps us see how you got your answer, and how well you understand each topic. It also enables us to give you helpful feedback and guidance. The Discussion section for Week 7 includes substantial additional references. Be sure to review them and incorporate them (as well as your own research) into the discussion.
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