Session 9: Estimating Hurdle Rates - Betas and Fundamentals

Examine the determinants of betas

[britneyma]

Cant imagine these videos are 9 years ago, I kept watching throughout the night. You are amazing

[harishganesan]

Last 1 minute of the lecture just blew my mind. Thanks

[prasad_sawant]

Hi Prof.,

First of all many thanks for the lectures. It is very helpful.

I have a doubt related to the topic :
As shown in the table variation of Beta for the Disney with Debt to Equity Ratio.

Generally, Equity has higher rate of expected return compared to Debt ( I think so, can be a wrong assumption )
considering this, if Debt to Equity ratio has increased then we expect the hurdle rate to go down as
Hurdle Rate = (Debt percentage)* (Return expected on Debt) + (Equity percentage)*(ROE)
But if Beta is increasing, Risk is increasing, the hurdle rate should go up - > which goes against previous response.

I also have feeling that if growth company like LinkedIn, Google or Disney took very high Debt then they become risky as they can't make sure that they will have the steady cash flow to make the payments to debtors, Hence Beta should go up. So does it mean when the Debt to Equity ratio is optimal then Beta will be lowest otherwise it will increase even if Debt increases or decreases.

Please understand me these conflicting concepts.

[ElevenKings]

The Jordan of Finance... The Mayweather Jr. of Finance, TBE.

[cosmogamer]

Novice finance student here: at 1:23 where does Tata's risk premium of 7.19% come from?

[rodrigoribeirovieira]

Table of Disney's beta related to D/E ratio (example) - 11:41

[azngang]

His intelligence is great aswath damodarwn taoist cloud Daoist Dayz