Why Is It Appropriate to Use the Required Rate of Return

question 67

Essay

Why is it appropriate to use the required rate of return on equity capital (rather than the weighted average cost of capital)as the discount rate in the residual income valuation approach?

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Definitions:

Implementing Phase

The stage in a project or strategy where planned actions are executed.

SWOT Analysis

A strategic planning tool used to identify the Strengths, Weaknesses, Opportunities, and Threats related to business competition or project planning.

External Environment

Factors outside an organization that can influence its operation, including economic, political, social, technological, and legal factors.

Situation Analysis

Second step in a marketing plan; uses a SWOT analysis that assesses both the internal environment with regard to its Strengths and Weaknesses and the external environment in terms of its Opportunities and Threats.