final assignment due 12/18

Valuation Conclusion

India Smith

University of Arizona

Running Head: ASSIGNMENT 4 1

14 December 2021

Introduction

The paper entails three major parts that constitute the required rate of return.

Part 1

A risk is an amount of having an unanticipated or adverse outcome. Any act that may outcome in loss may be referred to as a jeopardy. There are three kinds of risks: business risk, non-business risk, and financial risk. Business risk is the type of risk corporations take to exploit shareholder value and gains. Corporations disburse huge costs in advertising to present a new product to advance sales (Market Insider, n.d.). Non-business risks are the type of risks that are not controlled by the organizations. These risks ascend from political and economic disparities. Financial risks involve financial cost in corporations. Financial risk ascends due to unpredictability and costs in the financial market as a result of movements in stock prices, currencies, interest rates and more.

Risk and the required rate of return are interrelated directly by the mere fact that as the risk advances, the required rate of return also advances. When the risk falls, the required rate of return falls. The required rate of return resembles with the supposed risk of investment. It is the required rate of return that attracts a stockholder over an alternative venture in the present market. There are instances where the required rate of return is referred to as the discount rate (Yahoo! Finance, n.d.). As a primary approach applied in assessing operating corporations, the income method is grounded on the perception that the value of a corporation is equivalent to the present value of the future cash flows it is anticipated to bring about.

Part 2

Company Name	Beta
Verizon	0.41
Market Beta	1.0

Risk free rate of return = 2.0%

	Market rate	Required Rate of Return
Large Capitalization Company (Greater than $10.0 billion in market capitalization)	6.0%
For a mid-cap company (between $2.0 billion and $10.0 billion in market capitalization)	8.0%
For a small-cap company (less than $2.0 billion in market capitalization)	11.0%

As the risk increases, the required rate of return increases. This is as shown in the table above. A small-cap company has a higher rate of return as compared t a large capitalization company. The required rate of return is lower than the market rate of return.

Part 3

The high-end growth rate is 2.15%, while the low-end annual growth rate is 2.10%. The growth rates are higher than the specifically required rate of return.

	Market rate	Required Rate of Return	Stock Price
Large Capitalization Company (Greater than $10.0 billion in market capitalization)	6.0%
For a mid-cap company (between $2.0 billion and $10.0 billion in market capitalization)	8.0%
For a small-cap company (less than $2.0 billion in market capitalization)	11.0%

When using the required rate of return as the growth rate, the stock prices are between the low-end and low-end growth rates.

References

Market Insider. (n.d.). Verizon Communications Inc. Market Insider. Retrieved from December 07, 2021, from https://markets.businessinsider.com/stocks/vz-stock

Yahoo! Finance. (n.d.). Verizon Communications. Retrieved on December 07, 2021, from https://finance.yahoo.com/quote/VZ?p=VZ&.tsrc=fin-srch