Respond to…

Explain how the CAPM assists in measuring both risk and return.

There is always some level of risk when you invest in something.  The CAPM helps to calculate investment risk and what return on investment an investor should expect.  It assists in measuring both risk and return via a mathh design to generate a percentage illustration of the risk for an investment.  It assumes that financiers want a risk free investment and requests larger rates of return based on the anticipated risk.  ( Byrd, Hickman & McPherson, 2013).

Explain how the CAPM assists in calculating the weighted average costs of capital (WACC) and its components. 

The WACC blends costs of all the capital a company has across a variety of capital producing sources.  The CAPM helps in the WACC calculation because it usually calculates the cost of equity.

Illustrate why some managers have difficulty applying the Capital Asset Pricing Model (CAPM) in financial decision making.

According to Mullins (1982), managers may have trouble because the simple model may not be a satisfactory account of all of the actions of the financial market.  Estimates of the future, risk-free rate, and expected rate on the market is susceptible to error.  Mullins also claims that there is a set of problems that  are exclusive to corporate finance applications of CAPM.

Identify the benefits and drawbacks of using the CAPM.

According to ACCA Global, there are at least four benefits of CAPM.  1) It considers only logical risk. 2) It produces a theoretically-derived relationship between required return and logical risk.  3) It is usually viewed as a much better method for completing the cost of equity than the dividend growth model since it takes into account a company’s level of logical risk. 4)  It is obviously superior to the WACC in providing discount rates for use in investment appraisals.

References

ACCA Global CAPM:  Theory, Advantages, and Disadvantages.  Retrieved from https://www.accaglobal.com/uk/en/student/exam-support-resources/fundamentals-exams-study-resources/f9/technical-articles/CAPM-theory.html

Byrd,  J., Hickman, K., & McPherson, M. (2013).  Managerial finance.  [Electronic version].  San Diego, CA:  Bridgepoint Education, Inc.

Mullins, D.W. (1982, January).  Does the Capital Asset Pricing Model work?  Harvard Business Review.  Retrieved November 9, 2016 http://hbr.org/1982/01/does-the-capital-asset-pricing-model-work

Respond to…

Explain how the CAPM assists in measuring both risk and return.

The ability to be competitive and profitable requires a certain amount of risk.  The capital asset pricing model (CAPM), provides managers the capability to measure risk and its association with an asset and its expected return (Byrd, Hickman & McPherson, 2013).  CAPM assists in measuring both risk and return by categorizing risk into two categories; systematic and unsystematic risk.  Investors use these categories to determine whether an investment can be or cannot be mitigated. Ultimately, providing a measurement of risk capital and an estimated market risk or return curve.

Explain how the CAPM assists in calculating the weighted average costs of capital (WACC) and its components. 

The weighted average costs of capital (WACC) is an average expected rate a company pays it security holders to finance their assets (Henderson, 1979).  The WACC is often used by investors to determine the investment ability of a company.  The CAPM assists in calculating WACC by calculating the cost of equity that is essentially needed in the calculation of WACC.

Illustrate why some managers have difficulty applying the Capital Asset Pricing Model (CAPM) in financial decision making.

While commonly used, the CAPM is a method that relies on assumptions that are unrealistic to the actual occurrences of the market.  For instance, the model assumes that the volatility of the market and transaction are low.  However, that is not the case of the market and fees can change daily.  Unfortunately, this causes many managers to have difficulties with the concept because it works under the premise that everyone is going to buy and sell in the same manner, and share the same risk, which is not the case.  For example, one manager’s strategy maybe could be built on the principle that it is more profitable to buy when prices are at the lowest, when another may find this the least profitable strategy.

Identify the benefits and drawbacks of using the CAPM.

There are benefits and disadvantages to the use of the CAPM.  For instance, the CAPM can be very beneficial in that it offers a simplistic calculation that can provide a variety of risk evaluative outcomes of the rate of return.  Additionally, investor tend to use CAPM because is allows them to eliminate diversifiable risk by holding a large amount of different stocks (Byrd, Hickman & McPherson, 2013).  However, the drawbacks to the use of the CAPM is that it relies on an unrealistic assumption of a risk-free rate, which can result in a lower return that what the model actually calculated.

Reference:

Byrd, J., Hickman, K., & McPherson, M. (2013). Managerial Finance [Electronic version]. Retrieved from https://content.ashford.edu/

Henderson, G.V. (1979). In defense of the weighted average cost of capital. Financial Management. 8(3), 57. Retrieved from https://search.proquest-com.proxy-library.ashford.edu/docview/205241443?accountid=32521

Within organizations, the human resources department is considered an ally by some managers and a barrier by others. The legal requirements of managing HR require you to be the dispenser of policies, procedures, and rules at times and a trusted counselor and guide at other times. There are varying perspectives on the value HR policies bring to an organization. In other words, the policies, procedures, or rules may be viewed as tools that help or hinder leaders from managing their people and will either detract from or enhance company performance. When not properly aligned with the company’s goals, they can negatively affect the success of the organization. You know that you need to review the current HR policies, procedures, and rules and anticipate that you may be recommending changes, additions, or deletions. Because you are still new and solidifying your position within the company, you are concerned that missteps now will cost you your “place at the table.”

You decide to consult with your mentor-an experienced, powerful HR executive at another company. She presents the following for you to consider:

• What steps will you take in your policy, procedure, and HR rules review with the jewelry company?
• What will that involve? As you consider their HR policies, how will you ensure they are effectively aligned with what you see as the company’s goals?
• If you find areas where policy revision is needed, how will you present your recommendations?
• How do you feel your recommendations will be viewed?
• Do you anticipate resistance? If so, what plan do you have to overcome that?
• What do you see as the possible outcome from policy revision in terms of impact on the company’s performance?
• Write her an e-mail addressing these issues.

Note: You are required to use a minimum of 2 scholarly references in your research. Ensure that citations and references are formatted in compliance with APA style. 1,000-1,500 words

In 100 words

Why are flowering plants considered by many botanists to be the most successful land plants?