# 6(mf) | Accounting homework help

Instructions

1) Original Post = 300 words

2) 3- Responses needed = each response should 150 words

3) 3 References

4) Citations with in the body

Beta and Capital Budgeting

Part 1: Beta

Visit the following web site or other websites:

Yahoo Finance

1.  Search for the beta of your company (Group Project)

2.  In addition, find the beta of 3 different companies within the same industry as your company (Group Project).

3.  Explain to your classmates what beta means and how it can be used for managerial and/or investment decision

4.  Why do you think the beta of your company (individual project) and those of the 3 companies you found are different from each other? Provide as much information as you can and be specific

.

Part 2: Capital Budgeting

Before you respond to Part 2 of discussion 6 review the following information on Capital Budgeting Techniques

Capital Budgeting Decision Methods

CAPITAL BUDGETING (PRINCIPLES & TECHNIQUES)

To avoid damaging its market value, each company must use the correct discount rate to evaluate its projects. Review and discuss the following:

• Compare and contrast the internal rate of return approach to the net present value approach. Which is better? Support your answer with well-reasoned arguments and examples.

• Is the ultimate goal of most companies–maximizing the wealth of the owners for whom the firm is being operated–ethical? Why or why not?

• Why might ethical companies benefit from a lower cost of capital than less ethical companies?

Response-1(Vijay)

According to Yahoo Finance (2019), the beta value for Intel Corporation is 0.66 as one of those companies within the electronic industry as Intel Corporation, International Business Machines (IBM) has a beta value of 1.54. On the other hand, Advanced Micro Devices, Inc. (AMD) has a beta of 3.18, whereas AsusTEK Computer Inc. has a beta value of 0.84.

Beta means a measure that indicates the volatility of stock of a company compared to the value of the market. Since beta value is compared to the market value, the market beta takes a value of 1.0. So, the values of individual companies usually rank by the quantity they deviate from the market value. So, beta can be used to show the volatility of a security or its systematic risk for a company. It is used to show how a company’s market value of equity varies with change in the entire market. A beta value below 1.0 means lower volatility that the markets. For example, a beta of 0.5 means 5% gain for a firm with 10% market return. It is also used to compute the value of return on an asset in the Capital Asset Pricing Model.

The beta value for Intel Corporation Inc. (0.66) is different from ASUSTEK (0.84), AMD’s (3.18), and IBM’s (1.54) because it carries a systematic risk that is different from the rest of these companies. The risk involved in investing in these companies is different and is depicted by the different values of beta. For instance, IBM has 1.5, which is higher than Intel’s 0.66. It means that it is riskier to invest in IBM than in Intel. The higher beta value for IBM indicates that its premiums are higher than Intel’s, and IBM’s share price can shoot or drop fast. Investors would prefer investing in companies with high betas due to high returns associated with them. The higher the risk, the higher the returns. In this case, AMD is the best to invest due to its highest beta value (3.18) than Intel, IBM, and ASUSTEK.

Both Net Present Value (NPV) and Internal Rate of Return (IRR)are financial tools used for evaluating capital expenditures of projects, businesses, and investments. They are both discounting method since they cater in the rate of interest in the evaluation process. NPV discounts cash flows related to a projected project to the current value, which is used as an indicator of a loss or a surplus for the proposed project. On the other hand, the IRR approach determines the percentage of return rate at which these cash flows will result in a zero NPV. NPV is a better method to use than IRR because it gives an outcome with a value that forms a foundation for making financial decisions than IRR which only shows the percentage of rate of return without giving an investor how much they can make. For example, a project that gives a positive NPV, say \$600 gives an investor a picture of a valuable investment, rather than just giving a percentage of 13% higher than the marginal return rate of 11% as in IRR approach for a project evaluated with both of these approaches. It is not ethical to maximizing the company owners’ wealth because it is risky in the sense that employee retention challenges can arise. Employees would not be motivated to work in such an environment that focuses on increasing the wealth of firm owners when they are critically important. In such case, there is limited opportunity for employees to grow hence retaining experienced and highly skilled workers is hard. As a result, it can deter company growth. Ethical companies have an advantage of increased clients since they do not only focus on the economic component of growing profits but also improving the welfare of workers and the community.

Response-2(Divya)

Part 1: Beta

1. Quest for the beta of your organization

The beta of PepsiCo, Inc. is 0.53.

2. What’s more, locate the beta of 3 distinct organizations inside a similar industry as your organization (Group Project).

The beta of Coca-Cola Company is 0.34.

The beta of Starbucks Corporation is 0.52

The beta of Monster Beverage Corporation is 1.20

3. Disclose to your schoolmates what beta methods and how it very well may be utilized for administrative or potentially venture choice.

Beta is a proportion of a stock’s unpredictability in connection to the market. In measurable terms, beta speaks to the slant of the line through a relapse of information focuses from an individual stock’s profits against those of the market (Will Kenton, 2019). Beta portrays the movement of a security’s profits reacting to swings in the market.

Beta can enable financial specialists to comprehend whether a stock moves a similar way as the remainder of the market, at that point speculators can know how unsafe or unpredictable it is contrasted with the market. Utilizing beta to pick stocks is one of the apparatuses to diminish instability and make an increasingly differentiated portfolio ((Will Kenton, 2019). By figuring beta can enable you to settle on progressively shrewd choices about how you construct your speculation portfolio and it is one of valuable apparatuses to have when assessing your venture. Beta enables speculators to pick stocks that fall into their hazard safe place.

4. For what reason do you think the beta of your organization (singular venture) and those of the 3 organizations you found are not quite the same as one another? Give as much data as you can and be explicit.

The beta of PepsiCo, Inc., Coca-Cola Company and Starbucks Corporation is under 1, it implies that the loads of these 3 organizations are less unpredictable than the general market. In the event that adding them to your portfolio may alleviate hazard and may help in expanding ventures

The beta of Monster Beverage Corporation is more noteworthy than 1 may show that it’s more unstable than the market, and it likewise could implies it has the potential for more grounded returns.

Part 2: Capital Budgeting

• Compare and differentiation the inner pace of return way to deal with the net present worth methodology. Which is better? Bolster your answer with well-contemplated contentions and models.

Despite the fact that the interior pace of return approach and the net present worth methodology are both used to assess capital consumptions process. Be that as it may, these two methodologies have a ton of contrasts. Net present worth (NPV) is the distinction between the present estimation of money inflows over some undefined time frame, on the other hand, inward pace of return (IRR) is a figuring used to evaluate the benefit of potential ventures (Chris Gallant, 2019). IRR and NPV have the accompanying contrasts:

In the first place, result is unique. IRR produces the rate return that the undertaking is relied upon to make, nonetheless, the NPV strategies brings about a dollar esteem that a task will create.

Second, markdown rate is extraordinary. The executives is hard to infer the rebate rate since it dependent on saw hazard levels. The IRR strategies does not have to consider about markdown rate issue since the pace of return is gotten from the hidden money streams. Notwithstanding, the NPV strategy has the trouble since it requires the utilization of a rebate rate.

Last, choice help is unique. As NPV speak to a dollar return, it shows a venture choice establishment. Be that as it may, IRR can’t help in settling on speculation choices as its rate return can’t demonstrate the financial specialist how a lot of cash will be return.

All things considered, NPV is more vigorously utilized technique and superior to IRR.

• Is a definitive objective of most organizations – boosting the abundance of the proprietors for whom the firm is being worked – moral? Why or why not?

Truly, a definitive objective of any association is to expand its investors esteem. At the point when business chiefs attempt to amplify the abundance of their firm, they are really attempting to expand the organization’s stock cost; as the stock cost builds, the estimation of the firm increments, just as the investors’ riches (Rosemary Peavler, 2018). Amplifying investor riches and expanding benefit go connected at the hip.

• Why may moral organizations profit by a lower cost of capital than less moral organizations?

As per the moral venture research administration, moral organizations keep up a higher level of partner fulfillment which will emphatically impact the money related aftereffects of the organization. Moral organizations practices can help organizations keep away from lawful issues and negative money related outcomes that emerge once the exploitative conduct is found (Tara Duggan, 2019). In addition, the expense of capital relies upon the degree of hazard. Moral organizations can win more trust from open, financial specialists, workers and buyers. The dangers of moral organizations are lower than less moral organizations. That is the reason moral organizations have lower cost of capital than less moral organizations.

Response-3(Cai)

Part 1: Beta

1.  Search for the beta of your company (Group Project)

The beta of PepsiCo, Inc. is 0.53.

2.  In addition, find the beta of 3 different companies within the same industry as your company (Group Project).

The beta of Coca-Cola Company is 0.34.

The beta of Starbucks Corporation is 0.52

The beta of Monster Beverage Corporation is 1.20

3.  Explain to your classmates what beta means and how it can be used for managerial and/or investment decision.

Beta is a measure of a stock’s volatility in relation to the market. In statistical terms, beta represents the slope of the line through a regression of data points from an individual stock’s returns against those of the market (Will Kenton, 2019). Beta describes the activity of a security’s returns responding to swings in the market.

Beta can help investors understand whether a stock moves in the same direction as the rest of the market, then investors can know how risky or volatile it is compared to the market. Using beta to choose stocks is one of the tools to reduce volatility and create a more diversified portfolio ((Will Kenton, 2019). By calculating beta can help you make more smart decisions about how you build your investment portfolio and it is one of useful tools to have when evaluating your investment. Beta helps investors pick stocks that fall into their risk comfort zone.

4.  Why do you think the beta of your company (individual project) and those of the 3 companies you found are different from each other? Provide as much information as you can and be specific.

The beta of PepsiCo, Inc., Coca-Cola Company and Starbucks Corporation is less than 1, it means that the stocks of these 3 companies are less volatile than the overall market. If adding them to your portfolio may mitigate risk and may help in diversifying investments

The beta of Monster Beverage Corporation is greater than 1 may indicate that it’s more volatile than the market, and it also could means it has the potential for stronger returns.

Part 2: Capital Budgeting

• Compare and contrast the internal rate of return approach to the net present value approach. Which is better? Support your answer with well-reasoned arguments and examples.

Although the internal rate of return approach and the net present value approach are both used to evaluate capital expenditures process. However, these two approaches have a lot of differences. Net present value (NPV) is the difference between the present value of cash inflows over a period of time, by contrast, internal rate of return (IRR) is a calculation used to estimate the profitability of potential investments (Chris Gallant, 2019). IRR and NPV have the following differences:

First, result is different. IRR generates the percentage return that the project is expected to create, however, the NPV methods results in a dollar value that a project will produce.

Second, discount rate is different. Management is difficult to derive the discount rate since it based on perceived risk levels. The IRR methods does not need to consider about discount rate issue since the rate of return is derived from the underlying cash flows. However, the NPV method has the difficulty because it requires the use of a discount rate.

Last, decision support is different. As NPV represent a dollar return, it presents an investment decision foundation. However, IRR cannot help in making investment decisions as its percentage return cannot show the investor how much money will be return.

All in all, NPV is more heavily used method and better than IRR.

• Is the ultimate goal of most companies–maximizing the wealth of the owners for whom the firm is being operated–ethical? Why or why not?

Yes, the ultimate goal of any organization is to maximize its shareholders value. When business managers try to maximize the wealth of their firm, they are actually trying to increase the company’s stock price; as the stock price increases, the value of the firm increases, as well as the shareholders’ wealth (Rosemary Peavler, 2018). Maximizing shareholder wealth and maximizing profit go hand in hand.

• Why might ethical companies benefit from a lower cost of capital than less ethical companies?

According to the ethical investment research service, ethical companies maintain a higher degree of stakeholder satisfaction which will positively influence the financial results of the company. Ethical businesses practices can help companies avoid legal problems and negative financial results that arise once the unethical behavior is discovered (Tara Duggan, 2019). What’s more, the cost of capital depends on the level of risk. Ethical companies can win more trust from public, investors, employees and consumers. The risks of ethical companies are lower than less ethical companies. That is why ethical companies have lower cost of capital than less ethical companies.

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