How to Find Betas

How to find betas

To determine our beta we used comparable companies based off of revenue. For the T-Comm department used the companies in the Telecommunication Services industry. We set requirements for what companies we would pick to determine T-Comm's beta. The requirements consisted of revenue and bond rating (if needed). We selected companies that had revenue between $8,000 - $41,000. We also look at bond ratings if a company was on the boarder line of the revenue ranges. If a company met the revenue requirement and had a bond rating of BB+ or higher we accepted that company. We took the average of the five companies; which gave us a beta of 1.06. Hamada's EQUATION?

For Products and Services we approached it the same way. We selected companies in the Telecommunication Equipment industry as well as Computer and Network Equipment industry. The only requirement we used was that the companies we selected had to have revenues ranging from $1,500 -$8,500. We had 11 comparable companies; took an average of all the betas; which was 1.336. Then we used the Hamada's equation and found that our beta was 1.35.

Hurdle Rates

Our team decided it would be better for Teletech if we used two hurdle rates. We found the weight of debt and weight of equity for both departments (T-Comm and P/S), and also the cost of debt and cost of equity. Then we used that information to solve for the new hurdle rates, by using WACC. We came to the conclusion that the hurdle rate for T-Comm should be lower then what it is at now.