It is determined by Required Rate of Return Expected Dividend PaymentExisting Stock Price Dividend Growth Rate read more is a minimum return expected by an organization on its investment. Expected Return can be defined as the probable return for a portfolio held by investors based on past returns.
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Any project with an internal rate of return exceeding the.
. Internal Rate of Return IRR is a discount rate that is used to identify potentialfuture investments that may be profitable. In simpler terms the IRR is used to determine what percentage return of an investment is necessary for it to break even when adjusted for the value of time. The IRR is used to make the net present value NPV of cash flows from a projectinvestment equal to zero.
As it only utilizes past returns hence it is a limitation and value of expected return should not be a sole factor under consideration by investors in deciding whether to invest in a portfolio or not. Accounting Rate of Return refers to the rate of return which is expected to be earned on the investment with respect to investments initial cost and is calculated by dividing the Average annual profit total profit over the investment period divided by number of years by the average annual profit where average annual profit is calculated by. What is the Accounting Rate of Return.
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