Estimating Betas: Real-world example #2 🧮
Calculate beta of the P&G stock!
Use the monthly returns for the last 5 years: i.e. 2019-2023.
S&P 500 will be the proxy for the market portfolio.
Lastly, regress P&G’s returns on the market returns and calculate beta that way for the monthly case!
Rely on publicly available data resources and compare your results with the values already calculated on these platforms! Explain the difference or the similarity!
Entrepreneurs who are copying business models from an original country and trying to implement those models verbatim in their own countries generally are not able to calculate the risks properly, actually that is why they are copying in the first place.
Obviously, different markets will have different market dynamics: purchasing power, demographics, openness to innovation, state-level regulations, capital accumulated, and the backing of a sound financial infrastructure. All will affect your copy differently.
However, there is one more important aspect.
Checking whether the business was financially viable in the original country!
In many examples these founders are just copying models that are not even proven to be financially viable in the original country, i.e. no prospect of positive earnings and cash flows despite the growth.
⚠️
A money losing venture growing more may eventually become a worse money losing venture.
Have the ability to check this first.
Only a handful of perennial money losers evolved and beat the odds.
Estimating Betas: Real-world example 🧮
Calculate beta of the Visa stock!
Use the monthly returns for the last 5 years.
S&P 500 will be the proxy for the market portfolio.
Lastly, regress Visa’s returns on the market returns and calculate beta that way for the monthly case! Rely on publicly available data resources and compare your results with the values already calculated on these platforms!
Explain the difference or the similarity!
Create an additional model for which every input value is the same except for market portfolio being NASDAQ!
Earning your living in a foreign soil is commendable💰
However, many calculate the net value of their foreign-earned income wrong ⬇️
The salary you will earn in a foreign country denominated in that country’s currency will be depleted by the expenses in that same currency.
Earning Swiss francs in Turkey is different from earning Swiss francs in Switzerland.
Just saying as someone who has worked and lived in 3 different continents and 5 different countries 😉
❗ Remote work dampens such effects to some extent for certain jobs.
Do you think that your children or your prospective employees have the same quality education as you had before them?
Is it declining? Or as some claim, is it the quality of the students/prospective employees that is declining?
It is hard to solve this chicken-and-egg problem, which is additionally exacerbated by the inability to achieve much regarding equity and equality in education.
Assume that Hyrule Electronics is an all-equity firm producing and marketing video game consoles and software. Hyrule has a beta of 1.35. The market risk premium is 7.2% and the risk-free rate is 3.5%.
There are three projects Hyrule is considering investment. Projects have the same beta as that of the firm. What should the discount rate be for these projects?
Also, each project requires an investment of $1,000,000 and lasts for a single year after the initial investment. Project A’s expected cash flows next year is $1,500,000, B’s $1,250,000, and C’s $1,050,000.
Calculate each project’s IRR and NPV!
Which projects should Hyrule invest considering that each project is independent? Plot the security market line (SML), label the regions within which you should accept or reject a project, also show each project on that plot!
Deciphering College Admissions: The Importance of Standardized Test Scores 🔮
There is this debate of whether the standardized tests for admission into top colleges are really significant and whether they really measure the academic capabilities of the incoming class properly.
Recently, some top colleges have even ditched the standardized tests completely. Nonetheless, some of them reneged on the decision to ditch standardized tests and reinstated these tests as one of the required components of their applications.
Furthermore, the college hopefuls are lulled into thinking that their standardized scores are evaluated in isolation from other academic components of the application. Generally, this will not be the case and the importance of the standardized tests vary among top universities.
For Princeton, the standardized test scores are still very important; for MIT, they are important; but for Cornell and Stanford, they are just considered (but there are other academic indicators that they think are very important, such as rigor of secondary school record and academic GPA).
So, do your research and prepare accordingly!
The path to profitability and positive cash flows for any online retailer is long and in almost all cases the prospect of success is very low.
Your top line may still be driven and inflated by your pure-click e-commerce activities, lulling you into a false sense of security, but sooner or later you will learn that you need different, probably adjacent, business activities for sustainably positive bottom line and operating cash flows.
How to account for the changes in depreciation estimates 🧮
Assume that Sega purchased an arcade cabin production machinery for $80,000,000 with an estimated useful life of 15 years and estimated residual value of $5,000,000. Shortly after the start of Year 6, Sega changed the initial estimated life to 10 years and lowered the estimated residual value to $7,500,000.
What will be the depreciation expense that needs to be recorded by Sega from Year 6 onwards?
‘On Career Plans
All your past experiences and educational credentials served you well and you joined your target firm.
I exclude the situations where pedigree, legacy status, and/or connections trump objective and merit-based qualifications.
What is next now?
Many people throw their career plans, strategy, or tactics out of the window just after landing on a job.
Many think they are set for life although the game has just started.
Starting the game without an A-plan let alone contingency plans will make you suffer a lot.
So, after joining the firm, you should have a solid, but of course evolving, strategy that is better than what you had before joining it.
Do not be rudderless.’
