Such a situation will make ROE increase and the required rate of return
should be higher as well.
The abovementioned studies and discussions indicate how difficult it has been to come up with the right historical market equity risk premium as well as with the right required rate of return
(RRRE) on risk assets in the U.
The required rate of return
at each stage of the production process explains the effect of transfer pricing inflating accounting profits and hiding economic profits.
Ideally, this would be the ratio at an average for Bulgaria required rate of return
(RRR) from common stock, an average expected growth rate (g), and an average return on equity (ROE).
The model is also commonly expressed in terms of the investor's required rate of return
, which is written as:
Prior studies have determined risk-adjusted required rate of return
for the entire firm, an enterprise's entire supply chain network, but not an individual project within the supply chain.
The rule is that if the IRR for an investment exceeds the required rate of return
, then accept the investment; if IRR does not exceed the required rate of return
, reject the investment.
A price level higher (lower) than the book value is due to the fact that the return on equity in a period is assumed to be higher (lower) than the required rate of return
5) It is also understood that all investor groups have a particular required rate of return
that they believe compensates them for their level of financial risk.
While conceivably "there may be a clever way to slice and dice" such a transaction, in all likelihood, there would be a "toxic piece" that would force such a low price to compensate for an investor's required rate of return
, that it would eliminate the benefits of completing such a transaction, Levine explains.
The fact that the average net initial yield has dipped below the rate of borrowing means that there will be a much stronger reliance on rental growth or asset management opportunities for investors to achieve their required rate of return
Alternatively, earnings can be converted to value by dividing them by a capitalization rate, which encompasses the required rate of return
and the anticipated long-term growth rate.