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Target Return

What is a 'Target Return'

A target return is a pricing model that prices a business based on what an investor would want to make from any capital invested in the company. Target return is calculated as the money invested in a venture plus the profit that the investor wants to see in return, adjusted for the time value of money. As a return on investment method, target return pricing requires an investor to work backwards to reach a current price.

Explaining 'Target Return'

One of the major difficulties in using this pricing method is that an investor must pick both a return that can be reasonably attained, as well as a time period in which the target return can be reached. Picking a high return and a short time period means that the venture has to be much more profitable in the short-run than if the investor expected a lower return over the same period, or the same return over a longer period.


Further Reading


Prospect theory and the risk-return association: An empirical examination in 85 industries
www.sciencedirect.com [PDF]
… That assumption and the model have been a basic premise of much research in business, finance, economics and manage- ment … Hypothesis 3: The relationship between risk and return is steeper for organizations facing below their industry target returns than their …

Attitudes toward risk and the risk–return paradox: prospect theory explanationsAttitudes toward risk and the risk–return paradox: prospect theory explanations
journals.aom.org [PDF]
… That assumption and the model have been a basic premise of much research in business, finance, economics and manage- ment … Hypothesis 3: The relationship between risk and return is steeper for organizations facing below their industry target returns than their …

The combined effects of free cash flow and financial slack on bidder and target stock returnsThe combined effects of free cash flow and financial slack on bidder and target stock returns
www.jstor.org [PDF]
… That assumption and the model have been a basic premise of much research in business, finance, economics and manage- ment … Hypothesis 3: The relationship between risk and return is steeper for organizations facing below their industry target returns than their …

Target-firm information asymmetry and acquirer returnsTarget-firm information asymmetry and acquirer returns
academic.oup.com [PDF]
… That assumption and the model have been a basic premise of much research in business, finance, economics and manage- ment … Hypothesis 3: The relationship between risk and return is steeper for organizations facing below their industry target returns than their …

Acquisitions of private vs. public firms: Private information, target selection, and acquirer returnsAcquisitions of private vs. public firms: Private information, target selection, and acquirer returns
onlinelibrary.wiley.com [PDF]
… That assumption and the model have been a basic premise of much research in business, finance, economics and manage- ment … Hypothesis 3: The relationship between risk and return is steeper for organizations facing below their industry target returns than their …

Managerial risk preferences for below-target returnsManagerial risk preferences for below-target returns
pubsonline.informs.org [PDF]
… That assumption and the model have been a basic premise of much research in business, finance, economics and manage- ment … Hypothesis 3: The relationship between risk and return is steeper for organizations facing below their industry target returns than their …

The impact of managerial ownership on acquisition attempts and target shareholder wealthThe impact of managerial ownership on acquisition attempts and target shareholder wealth
www.jstor.org [PDF]
… That assumption and the model have been a basic premise of much research in business, finance, economics and manage- ment … Hypothesis 3: The relationship between risk and return is steeper for organizations facing below their industry target returns than their …

The returns to acquiring firms in tender offers: Evidence from three decadesThe returns to acquiring firms in tender offers: Evidence from three decades
www.jstor.org [PDF]
… That assumption and the model have been a basic premise of much research in business, finance, economics and manage- ment … Hypothesis 3: The relationship between risk and return is steeper for organizations facing below their industry target returns than their …

Acquirer-target social ties and merger outcomesAcquirer-target social ties and merger outcomes
www.sciencedirect.com [PDF]
… That assumption and the model have been a basic premise of much research in business, finance, economics and manage- ment … Hypothesis 3: The relationship between risk and return is steeper for organizations facing below their industry target returns than their …



Q&A About Target Return


What is target return?

Target return is a pricing model that prices a business based on what an investor would want to make from any capital invested in the company.

How does target return work?

The investor works backwards to reach a current price.

What are some conditions that may be required for returning items?

Conditions may include the merchandise being in certain condition, no more than a certain amount of time having passed since purchase, and sometimes identification must be provided (though usually only if receipt is not provided).

What does the target return method require?

It requires the investor to pick both a return and time period that can be reasonably attained.

Why might retailers have different policies on returns?

Different policies can vary by retailer. Some retailers will accept returns with receipts, while others do not. Some retailers will accept exchanges without receipts, but most require them. Some retailers will only give store credit without receipts, but most require them. Retailers may also have varying return periods based on their own internal policy. For example, Target has 90 days for electronics while Walmart has 30 days for electronics.

What is the process of a customer taking previously purchased merchandise back to a retailer and in turn receiving a refund?

The process of a customer taking previously purchased merchandise back to a retailer and in turn receiving an exchange or store credit.

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