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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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Over the past year, you earned a nominal rate of interest of 10% on your money. The inflation rate was 5% over the same period.
zimovet [89]

Answer:

exact actual growth rate of your purchasing power was 4.8%

Explanation:

given data

nominal rate of interest = 10%

inflation rate =  5%

solution

we get here exact actual growth rate that is express as

exact actual growth rate = \frac{1+rate\ of\ interest}{1+inflation\ rate} - 1      ..........................1

put here value and we will get

exact actual growth rate = \frac{1+0.10}{1+0.05} - 1

exact actual growth rate = 4.8 %

so here exact actual growth rate of your purchasing power was 4.8%  

3 0
3 years ago
Which three tags does Google Analytics require for accurate campaign tracking?
siniylev [52]

Option B, Medium, Source, and Campaign

Explanation:

Google Analytics, presently as a device for Google Marketing Platform, is a Web analytics privilege granted by Google to track and publish traffic on websites. Since acquiring Urchin, Google introduced the service in November 2005.

Google Analytics can remove a cookie in the user's browser when an user logs the website.

Cookies are tiny files with user interaction information.

Google Analytics can use these cookies to learn how a person complies with your website and gather this information in order to send you various reports.

4 0
4 years ago
uan Pablo and Zak are competitors in a local market. Each is trying to decide if it is better to advertise on TV, on radio, or n
Colt1911 [192]

Answer: Advertise on radio and earn $14,000

Explanation: Dominant strategy may be explained as the tactics or option which works best for a particular firm and seems to give the firm an edge abive other competitors.

Since both are following their dominant strategy, even though advertising on TV seems more lucrative if only one of the advertise, by the time both of them place TV advert, profit falls to $8000. therefore the strategy who gives the highest return when both thread the same advertising path is the radio advert, which gives a return profit of $14,000. Therfore, Uan Pablo should advertise on radio and earn a profit of $14000

6 0
3 years ago
An individual who provides services to your business, but is not an employee is considered
Reika [66]

Answer:

independent contractor

I hope it helps.

3 0
2 years ago
Following a phone call addressing a customer problem, what should you do? O Remove the customer from your mailing list. O Report
kakasveta [241]

Answer:  Follow up with a letter that documents the call and promotes goodwill.

                                         

Explanation: The given case, belongs to the public relations concept under which the company tries to interact better with their customers, so that the customers enjoy a healthy experience and the image of the company remains positive.

The proper way to address a complaint call is to follow up by giving a letter stating the explanation apologies, excuses shall not be mentioned and assurance should be provided that such action would not be taken in future.

                 

7 0
3 years ago
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