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

Classmate 1:

Part 1: Beta

1. Company

Verizon Communications (VZ): Beta (5Y Monthly) 0.41 (Verizon Communications Inc, n.d.)

2. Three competitors

AT&T: Beta (5Y Monthly) 0.74 (AT&T Inc., n.d.)

T-Mobile: Beta (5Y Monthly) 0.51 (T-Mobile US, n.d.)

Vodafone: Beta (5Y Monthly) 0.70 (Vodafone Group Public Limited Company, n.d.)

3. Beta

The systematic and unsystematic risks may both influence a financial choice. A firm's unsystematic or individual risk is referred to as a company risk, but the market risk is referred to as market risks, such as inflation or currency risk. In the context of the stock market or a single portfolio, beta measures the volatility or riskiness of a given investment. Beta is frequently used in investment management since it enables investors to identify whether a specific stock goes in the same direction as the market and establish its ideal risk-reward ratio. Specifically, the beta of the total market is one. If a stock's beta is less than 1, it fluctuates more minor than the overall market. On the other hand, a low-beta stock tends to be less risky but often yields less (Asgharian, et al., 2021).

Beta may also be utilized as an assessment criterion for projects in business management. The cost of equity (CAPM) and the cost of capital are calculated using beta. An investment or project's cost of capital is the needed return on investment. It is only sensible for a business to put money into a project if the projected returns are at least equivalent to the company's investment costs. The greater the beta of a company's stock, the more expensive its shares will be to investors, who now expect a more significant return to compensate for the increased risk. 

Verizon and T-Mobile have lesser betas when compared to AT&T, Verizon, T-Mobile, and Vodafone. Better financial performance is to blame for the disparity. In FY2021, AT&T has the most significant revenue. In contrast, Verizon has a greater net profit margin of 15.93 percent compared to 10.64 percent for AT&T. In 2021, Verizon, AT&T, and Deutsche Telekom (the parent company of T-Mobile) expect to raise their combined revenues by 3.67 percent, -5.72 percent, and 2.75 percent, respectively. In other words, AT&T saw a decrease in revenue in 2021. At 3.6x, 4.1x, and 3.8x, AT&T seems to have the most debt of the three firms studied. This suggests that the company's debt obligations can be met since the debt/EBITDA ratio is lower Asgharian, et al., 2021).

Part 2: Capital Budgeting

While IRR may be used to evaluate projects, NPV is more accurate. If all future cash inflows are equal to 0, then the IRR is similar to the anticipated rate of return of the investment. For starters, the NPV and IRR of individual projects are often identical. If you have two or more projects that are mutually exclusive, you can't utilize IRR. Depending on the project's scope and cash flow patterns, the IRR may provide varied outcomes. NPV, on the other hand, is more accurate since it accounts for changes in capital costs and future cash flows. Because a company's discount rate or cost of capital will fluctuate from year to year, IRR cannot account for this in its calculations. When comparing projects of varying lengths, IRR is ineffective (Dayanada, 2012).

An organization's primary objective is to increase the wealth and value of its shareholders. Organizations often arrange their resources to maximize profits and meet shareholder expectations. In addition, an increasing number of businesses are taking their social obligations seriously. Providing a safe and encouraging working environment for workers, protecting client privacy, and involvement in environmental concerns are some examples of social responsibility practices and policies. Even if there is some fascinating tension, a company may gain from being socially responsible, such as having a good reputation, boosting customers' loyalty, improving staff retention, and therefore improving financial success.

To put it another way, an ethical company will perform better and be less hazardous than a less ethical company. Investors in a less ethical company would thus demand a greater rate of return to compensate for the risk they must bear. The cost of a stock will be cheaper for companies that operate with integrity (Benson, Faff, 2013).

Classmate 2:

Beta

The beta for Yahoo as a company lies at 1.67. Google company, Router, and Microsoft Corp are other companies that are found under Internet Computer Software. Google's beta is at 1.61, Router at 1.63, and Microsoft Corp at 0.93. Beta refers to the measure of a company's stock volatility about the market's overall stock. A company calculates its financial beta through benchmarking, where its stock is compared to the U.S stock. By using the comparison, the company gets to know its stock's volatility about the overall market stock (Damodaran, 2012).

Investors in different industries use beta to decide which industries they will invest in. Companies' management uses the company's financial beta for decision-making purposes within their organizations. The financial beta of a company enables investors to gauge companies whose stock is more volatile in the market, thus making more sales and showing how it is doing in the overall market. Investors will invest in an industry whose beta shows more volatility. Organization management also uses its financial beta to decide on investments, sales, and marketing, among other areas of the organization. Beta gives the organization the limelight on how they are doing in the market; thus, their financial beta determines their decision (Iyiola, Munirat & Nwufo, 2012).

Different companies have different beta values. Comparing the beta value of Yahoo to that of Google, Router, and Microsoft Corp, the four companies have different financial beta because the companies did not use the same benchmarking. When the companies use different benchmarking services to calculate their beta, they will not have similar beta values. The companies have different stock values; therefore, their beta cannot be similar simultaneously. When calculating the beta value, different companies do it at different times; the difference in times makes their beta values differ. Therefore, it is rare to find similar beta values of companies (Damodaran, 2012).

Capital Budgeting

The two approaches to valuation, including the internal rate of return approach and the net present value approach, are both used by organizations to value their business operation. They both give the business its rating value, enabling it to rate its performance. The two approaches, however, differ such that the internal rate of return determines the percentage of return on a project an organization is working on, while the net present value approach determines the real value of the projects in terms of dollars. The main purpose of NPV is to provide the business with information regarding its excess value, while IRR focuses on the returns or the cash flow in the business. It is better to NPV in valuing a business since it provides it with real value, thus making it easy for the management to rate it (Fuller, 2013).

The main objective of companies is to attain the maximum profit from their operation. Considering this in the business world is ethical as no business will work under loss to make customers happy. Operating under a loss will make the business eventually go bankrupt and close up. No business can work under a loss unless it is a non-profiting organization. However, this becomes unethical if the business does not adhere to the ethical values of operations, thus getting the maximum profit through dubious means that are illegal or against business ethics.

Companies that apply positive ethical values in their operation have a high possibility of attracting more customers than those that operate unethically. Customers will buy more in organizations with good customer relations, value their products at a friendly price, and do not exploit them in any way. Such companies will also benefit from less cost of capital as different investors will choose to invest in ethical companies as they operate under no corrupt business or means (Morales-Sánchez, Orta-Pérez, & Rodríguez-Serrano, 2020).

Classmate 3:

part 1

Beta Value

1. The beta value for the Company AAR Corp is 1.58

2. The companies providing aviation services within the industries of AAR Corp are St engineering, Boeing Company, and Bombardier Inc.

Beta values

ST engineering- 0.59

Boeing Company- 1.47          

Bombardier Inc – 2.83

3. Importance of Beta Value

Managerial decision-making is aided by knowing the Beta value of a company's stock. When the beta value equals one, the whole market beta value, one stock is more volatile than the market, and one stock is less volatile than the market if it has a higher beta (Sepe, et al., 2015).

As we can see, the beta values of firms in the same industry vary significantly. Due to the fast changes in a company's profits and its cash flow, the business cycle is impacted, which in turn affects the beta value. Another element influencing beta variation is financial leverage, where the company's debt and financial structure influence beta value. A project or organization may raise profits by increasing revenue, known as "operational leverage (Sepe, et al., 2015).

Part 2

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

Yes, using the correct discount rate when analyzing the financial performance of projects is extremely important to minimize harm to the company's market value since a proper project's future cash flows, and NPV can be anticipated (Net Present Value). In addition, the correct discount rate will measure the health of the economy's credit markets. Changing discount rates directly influence banks' borrowing costs, which in turn affects the interest rate on loans. Discount rates may control market inflation (Vicente, et al., 2022).

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.

It is my view that the financial tool NPV (Net Present Value) is a superior financial tool for making investment choices since it provides future money value in the present time in comparison to IRR, which does not supply an amount of money a project will produce inside a set period of the time. The discount rate achieved by reinvesting cash inflows from capital investment is assumed in NPV, which yields more realistic results. Using IRR to compare various projects when the discount rate is uncertain might be beneficial. IRR has the disadvantage of allowing cash flow to be reinvested at the internal rate of return, even if this isn't always the case. In terms of making financial choices, the NPV is a more dependable tool (Vicente, et al., 2022).

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. To increase shareholder wealth, a firm's ultimate purpose will be to maximize profits for shareholders. Otherwise, investors would lose interest in investing and will not be willing to take on the risk associated with investments in a business whose profitability is very variable. Increasing revenues while keeping expenditures to a minimum are the goals of management and their teams. The primary purpose of generating shareholder value is to fulfill the demands of all stakeholders, including but not limited to consumers, suppliers, creditors, the government, and the tax authorities. Management must not completely disregard ethical objectives and business practices such as accident prevention, paying fair wages, and preserving reasonable hiring practices while being equally concerned with environmental issues such as clean air and water. These are all critical components of good corporate citizenship (Quintian, Corchado, 2019).

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

A firm's economic success and its employees' well-being benefit immediately when ethics are implemented. A company's productivity rises when its executives are held to high standards of ethical conduct. Ethical procedures help reduce costs by encouraging staff to think outside the box and come up with cost-effective ideas for the organization. A company's bottom line benefits from loyal clients willing to spend money with it because they have greater faith in ethical businesses (Quintian, Corchado, 2019).

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