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?

---

Definitions:

1960s

Refers to the decade from 1960 to 1969, characterized by significant social, political, and cultural changes worldwide.

1970s

A decade characterized by significant political, social, and economic changes worldwide, including the end of the Vietnam War and the oil crisis.

Unemployment Rate

The share of the labor market that is unoccupied but searching for jobs.

Cyclical Unemployment

Unemployment that arises during periods of economic downturn or recession, reflecting the overall health of the economy rather than individual or structural factors.