Then we get to the variables that we're going to run in the model.

Accruals divided by total assets, change in cash revenue divided by

prior total assets and property plant equipment divided by prior total assets.

Once those are calculated, we can do a regression.

If you want to do that in Excel, you can click Data Analysis > Regression.

You have to fill in the range for accruals, that's your y variable.

Make sure you stop at 2008, don't take the years that you're estimating.

Then do the same thing for the x range where we take cash revenue and PP&E.

Make sure Labels is checked so that you have the coefficients labeled.

Click Output Range, show Excel where you want the output, hit OK,

and voila, you get regression coefficients down here.

We're gonna take those coefficients and we're gonna put them in for

every single year cuz we're assuming the model is stationary for Arfabark.

Once we have the coefficients, then we can take the normal accruals as

a plus b times the change in cash revenue plus c times the PP&E,

you can see the formula if you click on that.

Once you get normal accruals,

then you take accruals minus normal accruals to get discretionary accruals.