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Beta using regression

Using available information from the financial statement (attached) of Company L and public market data for the S & P 500 index, Please calculate the beta of company L according to the following instructions:

Recommended discount rate for this sample exercise: 12%


1. Estimate Company L's market value each year for which data is available
by dividing free cash flow (depreciation + net earnings) by 12%

2. Calculate Company L's share price for each year by dividng L's market value by the number of shares outstanding that year

3. Calculate the percent change in share price from year to year

4. Gather S&P 500 closing index price data for the same years

5. Calculate the change in the S&P 500 index each year

6. Create a set of coordinate data where:
X = change in S&P 500 index each year, and
Y = the change in L's share price for each matching year

7. Calculate the regression line (y' = 0 + 1x) determined by the coordinate data

8. The slope of the regression line (1) is Lester's Beta

Please, let me know (step by step) how you arrived at the solution, I think I'll be able to figure out similar solutions on my own. Any help provided is greatly appreciated! Thank you.


Solution Summary

The solution explains how to calculate the beta of a company using regression analysis