anonymous
  • anonymous
Guys how to determine the Proper rate of return during financial crises??
Finance
  • Stacey Warren - Expert brainly.com
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SOLVED
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jamiebookeater
  • jamiebookeater
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anonymous
  • anonymous
Interesting question! In the midst of a crisis the main determinant of return should be the overall cyclicality of the company. If the company is cyclical in nature, when a recession hits the stock price (present value of expected future cash flows) will deteriorate so the return objective would mean nothing. If the company is not cyclical, the return requirement would be measured by taking a snap of returns for the company during the previous crisis.
anonymous
  • anonymous
required rate of return should contain: kd( cost of debt) and Ke(cost of euiqty9 both are the wacc, in crisis what happens both increases as the risk increase why, kd increases because the banks doesn´t grant loans so the price of the loans they grant increases their prices. Ke, as the companies has higher risk because their cash flows are very uncertain, the require higher returns so summarizing you have a higher required rate of return in crisis

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