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You know that when expanding and investing in projects overseas as Acme plans to, it is essential to understand such things as return on equity (ROE) and internal rate of return (IRR). Gather information on ROE and IRR. Post a two to three paragraph explanation for each of these terms and the advantages and disadvantages of using them when selecting projects to invest in overseas.

Return on Equity vs. Return on Capital
Return on Equity Definition
Keep Your Eye on the ROE

IRR Example

Select two companies from the same industry. Using the annual report information available on the company's website compute the ROE for each company.

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The response addresses the queries posted in 1084 words with references.

// In this paper, we will discuss about Return on Equity and Internal Rate of Return and its advantages and disadvantages of using them when selecting projects to invest in overseas. We will also discuss about an example of IRR and selection of two companies from the same industry and computation of ROE of these companies by using Annual Reports of these companies.//

Return on equity:

It measures the rate of return on the ownership interest (shareholder's equity) of the common stock owners. This return of investment measures the firm's efficiency at generating profits from every unit of shareholder's equity that is known to be Net assets minus Net liabilities. ROE comprehends three main aspects of corporate management, those are- profitability, asset management, and financial leverage. Return on equity is calculated by taking a year's worth of earnings and dividing them by the average shareholder equity for that year.

The formula for ROE: Net Income after Tax/ Shareholder Equity.

ROE is equal to a fiscal year's net income divided by total equity, excluding preferred shares, and it is expressed as a percentage. ROE is best used to compare companies in the same industry.

Advantages of using ROE when selecting projects to invest in overseas:

The benefit comes from the earnings reinvested in the company at a high ROE rate, which in turn gives the company a high growth rate. The benefit of the company can also come as a dividend on common shares or as a combination of dividends and reinvestment in the company.

This ratio indicates how profitable a company is by comparing its net income to its average shareholder's equity. The return on equity ratio measures how much the ...

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The response addresses the queries posted in 1084 words with references.

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See Also This Related BrainMass Solution

Expanding and investing in projects overseas with focuses on ROE, IRR, and ROI

Expanding and investing in projects overseas with focuses on ROE, IRR, and ROI

How is return on equity (ROE) defined and what is the importance of understanding the return on equity (ROE) as it applies to international financing? What would the strengths and weaknesses be?

How is internal rate of return (IRR) defined and what is the importance of understanding the internal rate of return (IRR) as it applies to international financing? What would the strengths and weaknesses be?

When selecting two companies from the same industry and using the most current annual report information available on the company's website how is the ROE computed for each?

When selecting the same two companies from the same industry and using the most current annual report information available on the company's website how is the ROI computed for each?

How can the ROE and the ROI of these companies be compared and described?

The objective is to understand the forces of globalization and its implications for the multinational firm and to recognize financial management decisions of multinational firms.

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