Session 10: Estimating Hurdle Rates - Bottom up Betas

[@hectordehoyos3634]

I recommend watching all these short videos, it is very valuable information that will help you better understand the intrinsic valuation method. You will not find better information related to this topic, supported with a very sustainable foundation. Keep it up Aswath

[@amyTNT]

It would be great if you could show the numbers you are talking about with some signs or your mouse. I am a non-native English speaker but I really love watching your videos. It is just somehow hard to follow you with the numbers and your verbal calculations

[@harishganesan622]

But beta measures the volatility w.r.t stock market in that country. How can i use two beta which are relative to different markets and arrive at a beta that will be relative to the stock market in US. This is little confusing for me . Can you please shed some information on this .

[@rodrigoribeirovieira2894]

Disney example - beta by business breakdown 5:13 minute

[@seoaneespinoza7301]

In the last part. How determined the cost of equity ( min 15.06) i thinks could be with CAPM if that ok you use de Beta leverage.? risk free rate and ERP wiht Implied ERP. Any help ?

[@Zeninos]

I dont understood really well your question, but im gonna assume its how he calculated the Ke (cost of equity) You are in fact correct, he used CAPM model: Ke = Rf + b * (Rm - Rf) b = i considered he used the leveraged one Rm = 8,51% Rf = 2,76% You can find these numbers using a simple system of 2 equations, since you have 6 complete equations (15:06) Assuming the data is from 2013, the long-term rates (>10y) were pretty much around 2,61-3,7%. Market return at 8,51% was also reasonable. S&P500 (1984-2013) went up by 8,24% a year. But im just trying to guess what numbers he used at that time.

[@pantelisloupos4484]

Is there any easy way (e.g. from bloomberg terminal) to find out what are the traded companies in a particular industry sector? Many thanks for the lectures!

[@yamakakatimakaka]

in an indirect way, yes. You open the list of companies in the index (member weightings), then right-click the header and add the column with sector/industry names. You can then filter the companies by sector/industry in excel

[@steveo6475]

How did you get the pure play betas?

[@seoaneespinoza7301]

Unlevered Beta corrected for Cash = Unlevered Beta (1 - Cash/ Firm Value)

[@fakenamekholmein1874]

@@seoaneespinoza7301 i missed this, very helpful. cheers

[@DeltaVal4P]

Isn't it a problem that we don't cash-adjust our company's beta ? Since we (i guess) can't get cash/sector, we skip this part and lever the business betas to get our final beta. But this way, we ignore the amount of cash the company has...?

[@birzhanbereket4297]

I think because we value only operating assets (EBIT) without interest income on cash

[@leoxu9673]

How is the ERP calculated in a particular business sector?

[@tuananhlv7117]

the slide is informative but I'm lost at which number u refering to

[@alexandergabrielariasllore9744]

Totally Agree

[@mapa5497]

why he did that 97%? i mean what is the relationship between cash and beta?

[@Zeninos]

If you are referring the 97% at 8:50, its because of the median of cash/firm value colune. Damodaran divided by (100%-2,96%=97,04%). In the video, he explained in another way to see the situation when he showed the balance sheet. Unlevered beta of the company = asset1 * beta1 + asset2 * beta2 Asset1 = cash, thus, beta = 0 Asset2 = movie business Unlevered beta of the company = 1,066 In conclusion, beta for only the movie business = 1,0985

[@surakshachoudhary2880]

To adjust for the 3% cash on average in the movie companies, you took the beta that you had and multiplied it by 0.97 to come up with the beta for the movie business alone. I would guess that the 3% cash would have exerted a downward pressure on beta*, so without this cash (or in other words after adjustment) the beta would actually be higher. Consequently, shouldn't the factor to be multiplied be greater than 1? *since cash should have a beta close to 0.

[@surakshachoudhary2880]

Sorry, I just realized we are dividing by 0.97 and not multiplying. That makes sense, thank you!

[@HimanshuSharma-oe4mk]

who disliked this ?