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eimsori [14]
3 years ago
6

Explain the impact of changes of investors’ required rate of return on wacc and a project’s

Business
1 answer:
podryga [215]3 years ago
3 0

Answer:

Explanation:

The required rate of return is the minimum that a project or investment must earn before company management approves the necessary funds or renews funding for an existing project. It is the risk-free rate plus beta times a market premium. Beta measures a security's sensitivity to market volatility. Market premium is the market return minus the risk-free rate, which is usually the three-month Treasury bill rate. Factors affecting the required rate include interest rates, risk, market returns and the overall economy.

 

Interest Rates

Changes in short-term interest rates, usually because of U.S. Federal Reserve action, lead to changes in other short-term and long-term rates, including U.S. Treasury bill rates. This changes the base risk-free rate and thus the required rate of return. For example, if the Fed tightens monetary policy by increasing short-term rates, risk-free U.S. Treasury rates will rise, thus increasing the required rate of return. Conversely, when the Fed lowers rates, the required rate of return falls.

Risk

Rates of return might be affected by risk factors outside management's control. According to New York University professor Aswath Damodaran, these risks include business risk, project risk and market risk. Business risk refers to competitive pressures, industry risk and international risk. Industry risk includes a changing regulatory environment, evolving technologies and the risk of rising raw material prices. International risk entails political instability and currency fluctuations. Liquidity risk means that a company could face serious financial difficulty and run out of cash. The required rate of return is higher when the risks are high, and lower when the risks are low.

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Market Returns

Changes in market returns affect the required rate of return. Market returns depend on several factors, such as corporate profits, interest rates, geopolitical events and natural disasters. For example, the civil unrest in North Africa and across the Middle East in late 2010 and early 2011 affected global market returns. The 2011 Japanese earthquake affected Japanese stock exchanges, as well as markets in China, Europe and the United States. The 2008 financial crisis hit the United States first, but markets elsewhere soon felt the impact.

Economy

The economy affects the required rate of return. Corporate profits fall in a recession and rise when economic growth picks up. Markets rise and fall with corporate profits, which affects the market premium component of the required rate. Economic uncertainty tends to increase the volatility of securities, which affects the beta component. Globalization means that changes in the economic conditions of one country could affect businesses in multiple countries, and thus the required rate of return for companies doing business in those countries.

I hope this was helpful.

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Shelly has $200,000 of QBI from her local jewelry store (a sole proprietorship). Shelly's proprietorship paid $30,000 in W–2 wag
natka813 [3]

Answer:

Qualified Business Income (QBI) Deduction:

With respect to the applicable provisions, the following are the provisions relating to QBI deduction:

(a) For Joint filers, if the taxable income is less than $315,000, the QBI deduction is limited to 20% of the qualified business income.

(b) The qualified business income includes the interest income not allocable to the business.

In the present case, the interest amount of $20,000 will not be considered for the calculation of QBI deduction (refer point (b) above).

Therefore, the total taxable income of S and her spouse will be $274,400 ($200,000 + $74,400) which was below the threshold limit of $315,000. Hence, they can claim the QBI deduction of 20% on the qualified business income of $200,000. The QBI deduction for 2018 is calculated as under:

QBI Deduction for 2018 = QBI x 20%

= $200,000 x 20%

= $40,000

Therefore, the QBI deduction for 2018 is $40,000.

Note: If the total taxable income exceeds the threshold limit of $315,000 for QBI deduction, the value of W-2 wages and qualified property would have been considered.

5 0
3 years ago
According to the bond-yield-plus-risk-premium approach, a firm's cost of retained earnings, r s , can be estimated by adding a r
Masja [62]

The approach suggest that a firm's cost of retained earnings can be estimated by adding a risk premium of 3% to 5% points to the before-tax interest rate on the firm's own long-term debt.

The bond-yield-plus-risk-premium approach does assumes that cost of equity is closely related to the firm's cost of debt.

  • The premium approach does help to determine the value of an assetof a company's such as its traded equity.

However, the approach suggest that a firm's cost of retained earnings can be estimated by adding a risk premium of 3% to 5% points to the before-tax interest rate on the firm's own long-term debt.

Read more about the premium approach:

<em>brainly.com/question/20354983</em>

7 0
2 years ago
A sunk cost: Requires a current outlay of cash. Is the lost benefit of choosing an alternative course of action. Is irrelevant i
igor_vitrenko [27]

Answer:

Is irrelevant in decision making

Explanation:

Since the suck cost is the cost that no longer is recovered so it should not be a factor to consider when making a decision. For example, you have bought a cinema ticket for this evening, but it is heavily rainy so you may get sick if you go to the cinema. The fact that you have paid for this ticket should not consider whether to go or stay home since you can not get this amount of money no matter what happens.

5 0
3 years ago
Taxes on the purchase of specific items such as gasoline, cigarettes, or alcoholic beverages are called _____ taxes.
marishachu [46]

Answer:

<em>Taxes on the purchase of specific items such as gasoline, cigarettes, or alcoholic beverages are called </em><em><u>excise</u></em><em> taxes.</em>

7 0
2 years ago
In the construction of a new housing development, which factor of production can be categorized as land?
yawa3891 [41]

I think it would be this answer

the people working to develop the communityb.bike paths and storesc.solar powerd.the idea to develop the housing community

6 0
3 years ago
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