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.

The cost of equity, cost of debt and the Weighted Average Cost of Capital (WACC) all play a role in determining the required return on international capital investments. The cost of equity represents the return that shareholders expect to receive when investing in a company; it is typically higher than the rate available from other sources such as debt because there is more risk associated with owning shares. On the other hand, the cost of debt measures what a company pays for borrowing money and is usually lower than equity costs as creditors bear less risk.

The WACC takes into account both equity and debt financing by weighing each component according to its respective market value. This gives investors an overall picture of expected returns before committing their funds to proposed projects or investments.

In addition to these basic components, allowances must also be made for various risks factors such as currency exchange rates, political instability in foreign countries, regulations regarding repatriation of profits etc. 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.