This paper derives a call option valuation equation assuming discrete trading in securities markets where the underlying asset and market returns are bivariate lognormally distributed and investors have increasing, concave utility functions exhibiting skewness preference. Since the valuation does not require the continouus time riskfree hedging of Black and Scholes, nor the discrete time riskfree hedging of Cox, Ross and Rubinstein, market effects are introduced into the option valuation relation. The new option valuation seems to correct for the systematic mispricing of well-in and well-out of the money options by the Black and Scholes option pricing formula.

This paper suggests that the pure‐play technique can be used in conjunction with the capital asset pricing model to determine the cost of equity capital for the divisions of a multidivision firm. Since the beta for a division is unobservable in the marketplace, a proxy beta derived from a publicly traded firm whose operations are as similar as possible to the division in question is used as the measure of the division's systematic risk. To provide empirical support for using the pure‐play technique, a sample of multidivision firms and pure‐play associated with each division is examined. It is shown that an appropriately weighted average of the betas of the pure‐play firms closely approximates the beta of the multidivision firm.

This paper suggests that the pure-play technique can be used in conjunction with the capital asset pricing model to determine the cost of equity capital for the divisions of a multidivision firm. Since the beta for a division is unobservable in the marketplace, a proxy beta derived from a publicly traded firm whose operations are as similar as possible to the division in question is used as the measure of the division's systematic risk. To provide empirical support for using the pure-play technique, a sample of multidivision firms and pure-play associated with each division is examined. It is shown that an appropriately weighted average of the betas of the pure-play firms closely approximates the beta of the multidivision firm.

In this article the authors comment on a note by researcher Clyde P. Stickney on optimal tax depreciation choice. It is Stickney's belief that the refinements made in the original model should be published in professional journals rather than academic journals. He is critical of the use of only partially rather than completely specified decision models in these various research efforts. He also suggests that an earlier note by the authors contains several errors. Stickney also argues that the effects of changes in the tax laws are of interest again only to the practitioner. One need look at only a few academic journals to see that the effects of changes in accounting standards, regulations by the U.S. Securities Exchange Commission, and auditing practices are of acute interest to academicians. Stickney identified what he believed to be three errors in a prior work by the authors. The first two, the optimal switchover year and the depreciation deductions taken, are interrelated and are valid points of criticism. The third criticism of the interpretation of salvage value is totally in error, however.

For many quarterly time series of corporate earnings per share, the data indicate the desirability of incorporating a power transformation into the time series model. Our empirical results suggest that, for such series, this will generally lead to forecasts of improved quality. The resulting forecasts compare more favorably with those of financial analysts than do forecasts derived from models without the transformation parameter.