Question 8 - CAPM: Betas and Private Firms You are attempting to estimate the beta of a private firm that has no comparable firms. You decide to estimate an "accounting" beta using past earnings. You have six years of accounting data on the private firm, and the comparable information on earnings changes for the average S&P 500 company during the same period. Earnings Net Income of Change- Year Private Average Company Firm in S&P $10.00 1988 + 7% million $15.00 1989 +10% million $18.00 1990 + 5% million $18.50 1991 - 10% million $19.00 1992 - 8% million $22.00 1993 million + 6% A. Estimate the accounting beta for the private company. B. What are the limitations of an "accounting" beta? Question 8 - CAPM: Betas and Private Firms You are attempting to estimate the beta of a private firm that has no comparable firms. You decide to estimate an "accounting" beta using past earnings. You have six years of accounting data on the private firm, and the comparable information on earnings changes for the average S&P 500 company during the same period. Earnings Net Income of Change- Year Private Average Company Firm in S&P $10.00 1988 + 7% million $15.00 1989 +10% million $18.00 1990 + 5% million $18.50 1991 - 10% million $19.00 1992 - 8% million $22.00 1993 million + 6% A. Estimate the accounting beta for the private company. B. What are the limitations of an "accounting" beta