Question

In: Finance

How might firms make adjustments to their assumed required returns in light of the recent major...

How might firms make adjustments to their assumed required returns in light of the recent major economic changes? (This is not a trick question, there isn’t an equation to use here, I’m looking for impressions and thoughtful suggestions.)

Solutions

Expert Solution

firm can make the adjustment to their assumed required rate of return in light of recent coronavirus crisis as it can be seen that there has been an increased risk in the Macro environment due to unfolding of the coronavirus and firm will be expecting a lower rate of return from its so that's because the external environment is not supporting in having a higher growth, because it can be seen that firm will be exposed to serious risks of defaulting upon its debt payments because of the lower generation of the profits and it will also have a serious challenge relating to the survival and existence in the long run so these firms will be requiring a lower rate of return in order to counter with these adverse economic situations.

firms will be generally trying to survive and sustain with Limited risk at this period of time because higher amount of risk can lead to a higher exposure of firms into volatile situations which can be uncertain at times and these situations should be exposing them to Macro risk which are not controllable in nature and form should be trying to be proactively managing these adverse situations in order to have a better required rate of return and they should be trying to be a lower growing company at this point of time because their major point of concern should be survival.


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