All providers of capital require a rate of return in relation to the risk they take. This required rate of return is paid to capital providers. Equity providers have a higher required rate of return because equity investors are paid after lenders (Gallagher, p. 238). The required rate of return is an after-tax amount. The relationship between risk and return is sometimes difficult to understand, but managers must be aware of and address these concerns. There is a methodical process for determining the required yield. Management must decide on the expected cash flows from the investment project. The company must also assess the risk of these cash flows. The company then determines the cost of capital and how the cash flows will be discounted, and then the required rate of return can be determined. An estimate of the value of the assets to the business is determined. The project is then evaluated whether it is acceptable or not. Many methods are used to determine whether or not a project is acceptable. For example, payback method, net present value and internal rate of return. Simply put, payback is the number of years it will take a business to recoup its initial investment. The net present value method takes into account the time value of money by finding the value of annual cash flows. The internal rate of return describes when the discount rate matches the present value of a project's expected costs relative to the present value or when the rate is estimated using a trial and error method. of errors and when the NPV is equal to zero, we have reached our rate. . Each method has advantages and disadvantages and managers must weigh these advantages and disadvantages. If an internal rate of return exceeds the cost of funds used to finance an investment project...... middle of paper ......different rates in China? WACC can be influenced by the market value and price per share of international investments. When evaluating your desire to expand internationally to China, you need to evaluate taxes in China. You need to differentiate how these taxes will affect the dividends paid to your shareholders. When a company tries to bring dollars back to the United States, that money will also be taxes. Capital expenditures without cash receipts must be taken into account. Business risk must be assessed. How will uncertainty about the future of the business affect future cash flow or earnings or the required rate of return. References: Gallagher, Timothy J. (2009) Financial Management: Principles and Practice, 5th edition. Free download press. and Bringham, E. (1986). Fundamentals of financial management. New York, NY: The Dryden Press