Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
Thanks for the kind words about the book!

1. How do you expense intangibles (both advertising and R&D) when the depreciation period is below 3 years, or above 3 years. For example, if i expense R&D for a period of 8 years.

Same process as using a 3-year depreciation, except you divide by "8." If you think the intangible has an expected life of two years, then divide by "2."

Damodaran has a useful spreadsheet here: http://pages.stern.nyu.edu/~adamodar/ that may help

2. Why is the capitalized operating leases discount rate set at 8%?

Yeah, I should have better explained my reasoning. When I wrote the book the 10-year Treasury was yielding 3.8%-4.3%, so I just rounded to 4.0%, then added a spread premium of 400 basis points. This seemed like a reasonable interest rate that a lessee (the tenant) would pay. In retrospect, a 400 basis point premium seems a little high. So I now use the 10-year Treasury yield and add 300 basis points. Admittedly, this is a broad-brush approach; some companies deserve lower interest rates, some higher. But, I try to keep things simple.

Speaking of the cost of money, did anyone note what the 3-month Treasury is yielding these days? 7 basis points! (That's 0.07%.) Last weekend, the 3-month yielded 1.51%. The sharp and swift decline gives you a clue to the high state of anxiety on Wall Street. (Another clue is the CBOE Volatility Index, or VIX. http://finance.yahoo.com/echarts?s=%5EVIX#chart2:symbol=^vix...) In the fixed income market, when bonds rally (i.e., there are more buyers than sellers), yields decline. I have never seen the yield on the short end of the bond market shed 144 basis points in three trading days.

Anyway, if I didn't answer either or both questions to your satisfaction, please let me know. Also, if you want a copy of a presentation I gave last Spring, send me an e-mail at Hewitt.Heiserman@EarningsPower.com. If for no other reason, I believe you will find my comments on why the stock market is still expensive of interest.


Hewitt
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.