The minimum Required Rate of Return should be calculated by looking at the rate of return that would be gained by putting money in a savings accounts that accrues interest at the current rate. If you investment is not projected to make more profit than that it does not meet the minimum Required Rate of Return.
The required rate of return is the minimum return an investor needs to justify the risk of an investment, while the expected rate of return is the return that an investor anticipates receiving based on their analysis of the investment's potential performance.
To calculate the value of each investment based on your required rate of return, you can use the discounted cash flow (DCF) method. This involves estimating future cash flows from the investment and discounting them back to their present value using your required rate of return as the discount rate. The formula is: Present Value = Cash Flow / (1 + rate of return)^n, where n is the number of periods. Summing the present values of all future cash flows will give you the total value of the investment.
A change in the required rate of return will affect a project's Internal Rate of Return (IRR) by potentially shifting the project's feasibility. If the required rate of return increases, the project's IRR needs to be higher to be considered acceptable. Conversely, a decrease in the required rate of return could make the project's IRR more attractive.
An increase in a firm's expected growth rate would normally cause its required rate of return to
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expected rate of return
The IRR rule states that if the internal rate of return (IRR) on a project or investment is greater than the minimum required rate of return - the cost of capital - then the decision would generally be to go ahead with it. Conversely, if the IRR on a project or investment is lower than the cost of capital, then the best course of action may be to reject it.
Question 4 How does the cost of debt differ from the required rate of return for bondholders?
Question 4 How does the cost of debt differ from the required rate of return for bondholders?
Relationship btwn an investor's required rate of return and value pf security
relationship between WACC and required rate of return.
If the required rate of return is 11 the risk free rate is 7 and the market risk premium is 4 If the market risk premium increased to 6 percent what would happen to the stocks required rate of return?