- FAQS
- https://www.youtube.com/watch?v=HgfHefwK7VQFAQS —- HOW TO RUN A REGRESSION IN EXCEL
- What tax rate should I use: You should be able to compute the tax rate for the firm from the income statement
- Which debt should I use: Use Long-term debt as a measure of the debt or leverage of the company
- How to calculate leverage ratio: Unless otherwise stated, you should use market values to estimate the firm’s leverage. If market values are not available (market value of debt is not provided), then you can use book values.
- Can beta be negative: Yes, beta can be negative. A negative beta means that the stock returns move opposite to that of market returns.
- Do I have to read the whole annual report?: No, you only need to read the corporate governance and executive compensation part of the annual report.
- What market and risk-free return should I use for CAPM?= Use historical average based on the data provided in the case study (market data)
- Risk-free rate: Note that annualized return on the government bond is provided. Since stock and market returns are on a monthly basis, you will have to convert the return (yield) on the bond accordingly. Also, use the annual average (using all the data) to estimate the risk-free rate for use in CAPM/Cost of Equity. But use the current rate for the cost of debt calculator (see below).
- Calculating WACC: Remember that you will have to use annual values to estimate the Cost of Equity as well as the Overall Cost of Capital
- What should I use as the current-long term Government bond rate in the cost of debt calculator: You will have to use the latest government bond rate as provided in the market data file. Do not use the rate from any other source.
- How do I change the cost of debt for different leverage ratios: Since there is no additional information on this, you can use the constant cost of debt in your analysis.
- How to calculate stock returns? Calculate stock return based on the stock price provided in the market data file (ignore dividends paid by the company)
- Industry Cost of Capital? You are not required to estimate the cost of capital based on industry averages. This requirement has been removed from the exercise.
- What Data Period Should I Use? Use all the data provided to calculate Beta, Cost of Capital, etc.
- Should I use Ln to calculate stock returns: No
PLEASE READ EACH FILE, FAQS AND INSTRUCTION CLEARLY.
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