Please answer the question below!(some people would argue....)

Some people would argue that companies with higher risk assets should use less debt. Is this what you observe and, if not, provide a possible explanation as to why not. (Answer in space below - do not expand the space, be concise in your answer that uses course/textbook knowledge.) 1. Beta Using 2 years of weekly data Company Raw Beta Adjusted Beta AC L SHOP 1.121 1.081 2. WACC Reported Given Bloomberg Defaults WACC Equity Weight Equity Beta E[Rm) used Cost of Equity Debt Weight Debt Cost Preferred Wei Preferred Cost Company AC L SHOP 10.80% 99.30% 1.08 10.07% 10.82% 0.70% 1.00% 0 Redone results with Country Premium = 5.5% and use of Raw Beta instead of Adjusted Beta WACC Equity Weight Equity Beta Cost of Equity Debt Weight Debt Cost Preferred Weight Preferred Cost Company AC L SHOP 6.92% 99.30% 1.21 6.90% 0.70% 1.00% 0 0 Reported Given Bloomberg Defaults WACC no tax Cost of Debt %ST Debt Effective Tax Rate Cost of LT Debt Reported prior to zeroing Cost of ST Del%LT Debt 3. WACC with no tax Company AC L SHOP 10.80% 1.04% 1% 0 99% 0.75% 10.80% Asset Risk Rank (1, 2 or 3) What is your ranking based on (pick one set of numbers from the above analysis and highlight them in yellow)? 4. Ranking of asset risk Company AC L SHOP 1.Beta SHOPIFY INC A Equity - | BETA - | Related Functions Menu Message * 0 ? SHOP CN C$ C 1396.49 +12.63 1394.00/1396.50 1x4 ET: On 02 Dec d Vol 276,045 0 1365.96T H 1401.711 L 1340.00T Val 380.236M SHOP CN Equity Relative Index SPTSX Index 96) Actions 97) Edit Historical Beta Data Last Price Data Last Price Wkly - Linear Beta +/ Non-Param Reg On Percent - 11/28/2018 12/27/2020 12/03/2017 12/03/2019 a Lago Winsorize 2 Std Dev Local 6M YTD 1Y 2Y SY Max Weekly >> Statistics Transformations Legend + Track Annotate ZoomSelect Copy Y - SHOPIFY INC - CLASS A x = S&P/TSX COMPOSITE INDEX 40 Y-1121 X 1.963 Linear Beta Range 1 30 Raw BETA 1.121 Adjusted BETA 1.081 20 ALPHA (Intercept) 1.963 R42 (Correlation-2) 0.170 10. R (Correlation) 0.413 Std Dev of Error 7.352 0 Std Error of ALPHA 0.726 Std Error of BETA 0.246 t-Test 4.553 Significance 0.000 Last T-Value -0.097 -16 -14 -12 -6 10 Last P-Value 0.462 SPTSX Index. Percent Number of Points 103 Select Last Spread 16053.56 30001000 Last Ratio 0.077 -10 -10 - 560 Weekly: 12/07/16 - 11/23/20 SHOP ON 25000 12200 120 300) Edit Panel 301) Expand Panel 402 NPW 22:18 So You Decided on an Electric Car. . Now What? 401 NPW 22:18 Oil drops as OPEC+ + resume talks on output cut extension after impa 400 NPW 22:18 Prosecutors building case against ex-PM Abe's secretary for failur 399 NPW 22:18 Norway labor union agrees wage deal, averting strike at Schlumberg Suggested Functions FA Get insight into a company's fundamentals COMP Compare returns for three securities 2 IMAC WACCI SHOPIFY INC - A Equity WACC - Related Functions Menu Message SHOP CN C$ C 1396.49 +12.63 1394.00/1396.50 1x4 On 02 Dec d Vol 276,045 0 1365.96T H 1401.717 L 1340.00T Val 380.236M SHOP CN Equity 1) Create Report Output to Weighted Average Cost of Capital Shopify Inc Period MR 2020 Q3 Cost of Capital - Current Market value Capital Structure (Millions of USD) Weight Cost WXC Market Cap 124,713.9 99.3% 3) Equity 99.3% 10.8% 10.7% ST Debt 11.0 0.0% 4) Debt Cost (A-T) 0.7% 1.0% 0.0% LT Debt 892.0 0.7% 5) Preferred Equity 0.04 0.04 0.0% Pref. Eqty 0.0 0.0% WACC 10.8% Total 125,616.8 100.0% 6 History WACC EVA I WACC 20.7527 ROIC EVA Spread track A 2 Economic Value Added (Millions of USD) 7) Net Operating Profit 8) Cash Operating Taxes NOPAT 9) Total Investment Capital Capital Charge -52.47 -72.53 20.06 7075.50 760.80 -10 Economic Value Added -740.75 01 OT 03 OT 03 2015-2019 ROIC 0.28% 010 EVA Spread - 10.47% 300) Edit Panel 301) Expand Panel 413 NS1 22:19 ESPN: Houston Rockets, Washington Wizards agree to Russell Westbro 412 TOR 22:19 Toronto Star: Millner-Criss lifts Middle Tennessee past Murray St. 411 TOR 22:19 Toronto Star: Petty leads Tide past Providence for 5th in Maui Inv 410 TOR 22:19 Toronto Star: Carter, No. 6 Mississippi State women rout New Orlea Suggested Functions EQRP Measure investment risk & expected retu... DVD Track dividends, splits & distributions SHOPIFY INC A Equity - WACC - Related Functions Menu Message Capital 13 Cost of Preferred Equity to Close SHOP CN Weighted Average cost of Capital Inputs Shopify Cost of a 11 Cost of Equity 12) Cost of Debt Cost of Equity Risk Free Rate 3) Equity + Equity Risk Premium 4) Debt Beta 5) Prefel Country Premium WACC Expected Market Return Risk Free Rate 10.82% 0.76 % 10.06 % 1.08 9.31% 10.07% 0.76 % 99.3% 0.0% 0.7% 0.0 100.0% Market Capitalization 124713.86 6) History WACCI 52.47 -72.53 20.06 7075.50 760.80 -740.75 1) Update 2) Reset Close 0,28% - 10.47% 300) Edit Panel 301) Expand Panel 416 DJ 22:19 Haidilao International's Share-Price Upside Appears Limited Mar 415 NS6 22:19 IDN Financials: KPK confiscated documents related to bribes for 10 414 BFW 22:19 Aussie, Kiwi Drop From Two-Year High on Virus Fears: Inside G-10 BFW 22:19 *CHINA LIAONING SELLS 3-YEAR GENERAL BONDS AT 3.29% : TRADER Sucested Functions EORP Messure investment risk & expected retu. DVD Track dividends. solits & distributions Modified WACC SHOPIFY INC - A Equity WACC - Related Functions Menu Message D7 Warning: Rough Approximation for WACC SHOP CN Equity 1) Create Report Output to XL Weighted Average Cost of Capital Shopify Inc Period MR - 2020 Q3 Cost of Capital - Current Market value Capital Structure (Millions of USD) Weight Cost WXC Market Cap 124,713.9 99.3% 3) Equity 99.3% 6.9% 6.0% ST Debt 11.0 0.0% 4) Debt Cost (A-T) 0.74% 1.0% 0.0% LT Debt 892.0 0.7% 5) Preferred Equity 0.0% 0.0% 0.0% Pref. Eqty 0.0 0.0% WACC 6.9% Total 125,616.8 100.0% 6) History - WACC EVA ROIC EVA Spread Economic Value Added (Millions of USD) 7) Net Operating Profit 8) Cash Operating Taxes NOPAT Ae + Track 2 MACE 99.7527 -52.47 -72.53 20.06 10 9) Total Investment Capital Capital Charge 7075.50 486.57 -10 -30- Economic Value Added -466.51 01 01 2000-20:34 ROIC 0.28% 2015-2019 EVA Spread -6.59% 300) Edit Panel 301) Expand Panel 460 MTN 22:23 Better Life Commercial Chain Repurchases More Shares in November 459 BZS 22:23 Stocks to watch: Wipro, HDFC Life, IT stocks, IndiGo, Bharti Airte 458 AFR 22:23 Pandemic disputes keep law firms busy 457 AFR 22:23 Home-building loans hit new record high on HomeBuilder Suggested Functions EQRP Measure investment risk & expected retu... DVD Track dividends, splits & distributions SHOPIFY INC A Equity - WACC - Related Functions Menu Message Capital 13) Cost of Preferred Equity 2 to Reset, to Close SHOP CN Weighted Average cost of Capital Inputs Shopify Cost of a 1D Cost of Equity 17 Cost of Debt Cost of Equity Risk Free Rate 3) Equity Equity Risk Premium 4) Debt Beta 5) Prefe Country Premium WACC Expected Market Return Risk Free Rate 6 History Market Capitalization WACC 6.92 % 0.76 % 6.16 % 1.12 5.50 % 10.07 0.76 % 99.3% 0.0% 0.76 0.0% 100.0% 124713.86 -52.47 -72.53 20.06 7075.50 486.57 -466.51 1 Update 2) Reset Close 0.28% -6.59% 300) Edit Panel 301) Expand Panel 463 APW 22:24 Agent: LeBron Inks 2-year, $85 Million Extension With Lakers 462 AUB 22:23 Gladys Berejiklian oversaw fund that set aside $5.5m for project 461 AUB 22:23 Point Cook fire victims were young happy couple and their 4.Debt | SHOPIFY INC - A Equity - WACC - Related Functions Menu Message *C? Capital 1 to Update, to Close SHOP CN Weighted Average Cost of Capital Inputs Shopify Cost of a 11 Cost of Equity 12) Cost of Debt 13) Cost of Preferred Equity Cost of Debt 1 - Effective Tax Rate 3) Equity Effective Tax Rate 4) Debt Total Pre-Tax Cost of Debt 5) Prefel Note Rate x ST Debt to Total Debt WACC ST Debt to Total Debt X Note Rate Bond Rate x LT Debt to Total Debt 6) History LT Debt to Total Debt WACC x Bond Rate X WACC 10 Debt Adjustment Factor 10.7527 Total Debt Short Term Debt Long Term Debt 1.04 % 100.00 % 0.00 % 0.75 % 0.00 % 0.01 0.21 % 0.75 % 0.99 0.76% 1.38 99.3% 0.0% 0.7% 0.0% 100.0% -52.47 - 72.53 20.06 20- 902.99 10.99 891.99 7075.50 486.57 -10- -20- -466.51 D) Update 2) Reset 2 Close 0.28% -6.59% 300) Edit Panel 301) Expand Panel 477 DJ 22:25 Global Stock Indexes at at 22:25 EST/0325 GMT 476 TWT 22:25 Reuters U.S. News: From @Breakingviews: The hopes for higher U.S. I 475 TWT 22:25 Reuters: France's Giscard died from complications linked to COVID- 474 FTI 22:25 Covid hospitalisations top 100,000 for first time in US Suggested Functions EQRP Measure investment risk & expected retu... DVD Track dividends, splits & distributions Some people would argue that companies with higher risk assets should use less debt. Is this what you observe and, if not, provide a possible explanation as to why not. (Answer in space below - do not expand the space, be concise in your answer that uses course/textbook knowledge.) 1. Beta Using 2 years of weekly data Company Raw Beta Adjusted Beta AC L SHOP 1.121 1.081 2. WACC Reported Given Bloomberg Defaults WACC Equity Weight Equity Beta E[Rm) used Cost of Equity Debt Weight Debt Cost Preferred Wei Preferred Cost Company AC L SHOP 10.80% 99.30% 1.08 10.07% 10.82% 0.70% 1.00% 0 Redone results with Country Premium = 5.5% and use of Raw Beta instead of Adjusted Beta WACC Equity Weight Equity Beta Cost of Equity Debt Weight Debt Cost Preferred Weight Preferred Cost Company AC L SHOP 6.92% 99.30% 1.21 6.90% 0.70% 1.00% 0 0 Reported Given Bloomberg Defaults WACC no tax Cost of Debt %ST Debt Effective Tax Rate Cost of LT Debt Reported prior to zeroing Cost of ST Del%LT Debt 3. WACC with no tax Company AC L SHOP 10.80% 1.04% 1% 0 99% 0.75% 10.80% Asset Risk Rank (1, 2 or 3) What is your ranking based on (pick one set of numbers from the above analysis and highlight them in yellow)? 4. Ranking of asset risk Company AC L SHOP 1.Beta SHOPIFY INC A Equity - | BETA - | Related Functions Menu Message * 0 ? SHOP CN C$ C 1396.49 +12.63 1394.00/1396.50 1x4 ET: On 02 Dec d Vol 276,045 0 1365.96T H 1401.711 L 1340.00T Val 380.236M SHOP CN Equity Relative Index SPTSX Index 96) Actions 97) Edit Historical Beta Data Last Price Data Last Price Wkly - Linear Beta +/ Non-Param Reg On Percent - 11/28/2018 12/27/2020 12/03/2017 12/03/2019 a Lago Winsorize 2 Std Dev Local 6M YTD 1Y 2Y SY Max Weekly >> Statistics Transformations Legend + Track Annotate ZoomSelect Copy Y - SHOPIFY INC - CLASS A x = S&P/TSX COMPOSITE INDEX 40 Y-1121 X 1.963 Linear Beta Range 1 30 Raw BETA 1.121 Adjusted BETA 1.081 20 ALPHA (Intercept) 1.963 R42 (Correlation-2) 0.170 10. R (Correlation) 0.413 Std Dev of Error 7.352 0 Std Error of ALPHA 0.726 Std Error of BETA 0.246 t-Test 4.553 Significance 0.000 Last T-Value -0.097 -16 -14 -12 -6 10 Last P-Value 0.462 SPTSX Index. Percent Number of Points 103 Select Last Spread 16053.56 30001000 Last Ratio 0.077 -10 -10 - 560 Weekly: 12/07/16 - 11/23/20 SHOP ON 25000 12200 120 300) Edit Panel 301) Expand Panel 402 NPW 22:18 So You Decided on an Electric Car. . Now What? 401 NPW 22:18 Oil drops as OPEC+ + resume talks on output cut extension after impa 400 NPW 22:18 Prosecutors building case against ex-PM Abe's secretary for failur 399 NPW 22:18 Norway labor union agrees wage deal, averting strike at Schlumberg Suggested Functions FA Get insight into a company's fundamentals COMP Compare returns for three securities 2 IMAC WACCI SHOPIFY INC - A Equity WACC - Related Functions Menu Message SHOP CN C$ C 1396.49 +12.63 1394.00/1396.50 1x4 On 02 Dec d Vol 276,045 0 1365.96T H 1401.717 L 1340.00T Val 380.236M SHOP CN Equity 1) Create Report Output to Weighted Average Cost of Capital Shopify Inc Period MR 2020 Q3 Cost of Capital - Current Market value Capital Structure (Millions of USD) Weight Cost WXC Market Cap 124,713.9 99.3% 3) Equity 99.3% 10.8% 10.7% ST Debt 11.0 0.0% 4) Debt Cost (A-T) 0.7% 1.0% 0.0% LT Debt 892.0 0.7% 5) Preferred Equity 0.04 0.04 0.0% Pref. Eqty 0.0 0.0% WACC 10.8% Total 125,616.8 100.0% 6 History WACC EVA I WACC 20.7527 ROIC EVA Spread track A 2 Economic Value Added (Millions of USD) 7) Net Operating Profit 8) Cash Operating Taxes NOPAT 9) Total Investment Capital Capital Charge -52.47 -72.53 20.06 7075.50 760.80 -10 Economic Value Added -740.75 01 OT 03 OT 03 2015-2019 ROIC 0.28% 010 EVA Spread - 10.47% 300) Edit Panel 301) Expand Panel 413 NS1 22:19 ESPN: Houston Rockets, Washington Wizards agree to Russell Westbro 412 TOR 22:19 Toronto Star: Millner-Criss lifts Middle Tennessee past Murray St. 411 TOR 22:19 Toronto Star: Petty leads Tide past Providence for 5th in Maui Inv 410 TOR 22:19 Toronto Star: Carter, No. 6 Mississippi State women rout New Orlea Suggested Functions EQRP Measure investment risk & expected retu... DVD Track dividends, splits & distributions SHOPIFY INC A Equity - WACC - Related Functions Menu Message Capital 13 Cost of Preferred Equity to Close SHOP CN Weighted Average cost of Capital Inputs Shopify Cost of a 11 Cost of Equity 12) Cost of Debt Cost of Equity Risk Free Rate 3) Equity + Equity Risk Premium 4) Debt Beta 5) Prefel Country Premium WACC Expected Market Return Risk Free Rate 10.82% 0.76 % 10.06 % 1.08 9.31% 10.07% 0.76 % 99.3% 0.0% 0.7% 0.0 100.0% Market Capitalization 124713.86 6) History WACCI 52.47 -72.53 20.06 7075.50 760.80 -740.75 1) Update 2) Reset Close 0,28% - 10.47% 300) Edit Panel 301) Expand Panel 416 DJ 22:19 Haidilao International's Share-Price Upside Appears Limited Mar 415 NS6 22:19 IDN Financials: KPK confiscated documents related to bribes for 10 414 BFW 22:19 Aussie, Kiwi Drop From Two-Year High on Virus Fears: Inside G-10 BFW 22:19 *CHINA LIAONING SELLS 3-YEAR GENERAL BONDS AT 3.29% : TRADER Sucested Functions EORP Messure investment risk & expected retu. DVD Track dividends. solits & distributions Modified WACC SHOPIFY INC - A Equity WACC - Related Functions Menu Message D7 Warning: Rough Approximation for WACC SHOP CN Equity 1) Create Report Output to XL Weighted Average Cost of Capital Shopify Inc Period MR - 2020 Q3 Cost of Capital - Current Market value Capital Structure (Millions of USD) Weight Cost WXC Market Cap 124,713.9 99.3% 3) Equity 99.3% 6.9% 6.0% ST Debt 11.0 0.0% 4) Debt Cost (A-T) 0.74% 1.0% 0.0% LT Debt 892.0 0.7% 5) Preferred Equity 0.0% 0.0% 0.0% Pref. Eqty 0.0 0.0% WACC 6.9% Total 125,616.8 100.0% 6) History - WACC EVA ROIC EVA Spread Economic Value Added (Millions of USD) 7) Net Operating Profit 8) Cash Operating Taxes NOPAT Ae + Track 2 MACE 99.7527 -52.47 -72.53 20.06 10 9) Total Investment Capital Capital Charge 7075.50 486.57 -10 -30- Economic Value Added -466.51 01 01 2000-20:34 ROIC 0.28% 2015-2019 EVA Spread -6.59% 300) Edit Panel 301) Expand Panel 460 MTN 22:23 Better Life Commercial Chain Repurchases More Shares in November 459 BZS 22:23 Stocks to watch: Wipro, HDFC Life, IT stocks, IndiGo, Bharti Airte 458 AFR 22:23 Pandemic disputes keep law firms busy 457 AFR 22:23 Home-building loans hit new record high on HomeBuilder Suggested Functions EQRP Measure investment risk & expected retu... DVD Track dividends, splits & distributions SHOPIFY INC A Equity - WACC - Related Functions Menu Message Capital 13) Cost of Preferred Equity 2 to Reset, to Close SHOP CN Weighted Average cost of Capital Inputs Shopify Cost of a 1D Cost of Equity 17 Cost of Debt Cost of Equity Risk Free Rate 3) Equity Equity Risk Premium 4) Debt Beta 5) Prefe Country Premium WACC Expected Market Return Risk Free Rate 6 History Market Capitalization WACC 6.92 % 0.76 % 6.16 % 1.12 5.50 % 10.07 0.76 % 99.3% 0.0% 0.76 0.0% 100.0% 124713.86 -52.47 -72.53 20.06 7075.50 486.57 -466.51 1 Update 2) Reset Close 0.28% -6.59% 300) Edit Panel 301) Expand Panel 463 APW 22:24 Agent: LeBron Inks 2-year, $85 Million Extension With Lakers 462 AUB 22:23 Gladys Berejiklian oversaw fund that set aside $5.5m for project 461 AUB 22:23 Point Cook fire victims were young happy couple and their 4.Debt | SHOPIFY INC - A Equity - WACC - Related Functions Menu Message *C? Capital 1 to Update, to Close SHOP CN Weighted Average Cost of Capital Inputs Shopify Cost of a 11 Cost of Equity 12) Cost of Debt 13) Cost of Preferred Equity Cost of Debt 1 - Effective Tax Rate 3) Equity Effective Tax Rate 4) Debt Total Pre-Tax Cost of Debt 5) Prefel Note Rate x ST Debt to Total Debt WACC ST Debt to Total Debt X Note Rate Bond Rate x LT Debt to Total Debt 6) History LT Debt to Total Debt WACC x Bond Rate X WACC 10 Debt Adjustment Factor 10.7527 Total Debt Short Term Debt Long Term Debt 1.04 % 100.00 % 0.00 % 0.75 % 0.00 % 0.01 0.21 % 0.75 % 0.99 0.76% 1.38 99.3% 0.0% 0.7% 0.0% 100.0% -52.47 - 72.53 20.06 20- 902.99 10.99 891.99 7075.50 486.57 -10- -20- -466.51 D) Update 2) Reset 2 Close 0.28% -6.59% 300) Edit Panel 301) Expand Panel 477 DJ 22:25 Global Stock Indexes at at 22:25 EST/0325 GMT 476 TWT 22:25 Reuters U.S. News: From @Breakingviews: The hopes for higher U.S. I 475 TWT 22:25 Reuters: France's Giscard died from complications linked to COVID- 474 FTI 22:25 Covid hospitalisations top 100,000 for first time in US Suggested Functions EQRP Measure investment risk & expected retu... DVD Track dividends, splits & distributions