Target Return can be defined as a model that is used for pricing the business. This model prices the business on the basis of the fact the amount of return that an investor is expecting to earn from the business. Target return is actually the amount of money that is invested in the venture in the form of the capital and the profit over this investment that an investor wants to see in return of its investment. The target return is always adjusted for inflation and the time value of money. This means that in order to calculate the target return the investor has to move backward in order to calculate the current price.
Target return pricing model is a model that is a little complex and it is a bit difficult to apply. The reason behind this is that the investor needs to pick the return that is achievable and he must choose the time period in which the total amount of target return can be achieved. If an investor picks a high rate of return and a short time period this means that the investment must return high in a short span of time. On the other hand if the investor expect low rate of return and longer time period than the investment may return low in a longer time period.
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