Business & Finance homework help. FRL 4401 WRDS Classroom Project
Due Date: 3/15/2020 @ 11:59pm
course code is: yu39788915
CAPM Equity Valuation Module
In this exercise, you are tasked with downloading historical returns of Microsoft to estimate its beta, then asked to compute the cost of equity using the Capital Asset Pricing Model (CAPM). Click the Link to Platform button or use the following link to retrieve the historical return of Microsoft from 2012 to 2017: https://wrds-classroom.wharton.upenn.edu/stock-returns/
- Using S&P return as the market return, calculate the five-year monthly regression Beta of Microsoft.
- Calculate the Jensen’s alpha of Microsoft.
- During 2012-2017, what percentage of Microsoft’s excess returns can be attributed to the market portfolio returns?
Click the Link to Platform button or use the following link to retrieve the historical return of Vanguard Information Technology ETF (VGT VIS) returns from 2012 to 2017: https://wrds-classroom.wharton.upenn.edu/etf-and-factor-returns/
- Using S&P return as the market return, calculate the five-year monthly regression Beta of VGT VIS.
- Calculate the Jensen’s alpha of VGT VIS.
During 2012-2017, what percentage of VGT VIS’ excess returns can be attributed to the market portfolio returns?
Three Levers of Performance Module
In this module, you will learn how managers can use three levers to increase ROE:
- The Profit Margin: earnings out of every sale. It involves working on the company’s income statement by trying to squeeze out as much profit out of the sales.
- The Asset Turnover: the sales generated out of the assets invested in the company. As a manager, it involves working on the assets side of the balance sheet to make sure that the assets employed are delivering as much sales.
- The Financial Leverage: the amount of equity needed to finance the assets. Managers can work on the liability side of the balance sheet to tune the amount of equity required to finance all the assets.
Using the Financial Statement web query, download and report basic financial ratios for Adobe (ADBE); General Motors (GM); Hewlett-Packard (HPQ); and Southwest Airlines (LUV) from 1990-2015: https://wrds-classroom.wharton.upenn.edu/financial-statements/. Download results in Excel. Compute ratios every 5 years to see trends: 1990; 1995; 2000; 2005; 2010; 2015. Look into the variation of the three components and answer the following questions:
- Did financial performance change due to an increase in the Profit Margin or in Leverage?
- Which determinants of ROE are more difficult to improve from a managers’ perspective?
- How can companies increase Asset Turnover? Give examples in the retail industry.
- Interpret the differences in three levers: identify real changes in the businesses that would reflect a change in the ratios.
- What type of companies display higher levels of leverage?