The Beta for FLIR Systems Joey Moss, a recent finance graduate, has just begun his job with the investment firm of Covili and Wyatt. Janet Covili, one of the firm’s founders, has been talking to Joey

The Beta for FLIR Systems

Joey Moss, a recent finance graduate, has just begun his job

with the investment firm of Covili and Wyatt. Janet Covili,

one of the firm’s founders, has been talking to Joey about

the firm’s investment portfolio. As with any investment,

Janet is concerned about the risk of the investment as well

as the potential return. More specifically, because the

company holds a diversified portfolio, Janet is concerned

about the systematic risk of current and potential

investments. One position the company currently holds is

stock in FLIR Systems, Inc. (FLIR). FLIR Systems designs,

manufactures, and markets thermal imaging and infrared

camera systems. Although better known for its military

applications, the company has divisions that design products

for other applications such as automotive night vision,

commercial products that require minute temperature

difference measurements, recreational marine usage, and

firefighting.

Covili and Wyatt currently uses a commercial data vendor

for information about its positions. Because of this, Janet is

unsure exactly how the numbers provided are cal The data provider considers its methods proprietary, and it

will not disclose how stock betas and other information are

calculated. Janet is uncomfortable with not knowing exactly

how these numbers are being computed and also believes

that it could be less expensive to calculate the necessary

statistics in-house. To explore this question, Janet has asked

Joey to do the following assignments:

Question: How does a stock’s beta impact its expected

rate of return and share valuation for FLIR Systems?