Which of the Following Statements Is CORRECT

question 146

Multiple Choice

Which of the following statements is CORRECT?

• A) Logically, it is easier to estimate the betas associated with capital budgeting projects than the betas associated with stocks, especially if the projects are closely associated with research and development activities.
• B) The beta of an "average stock," which is also "the market beta," can change over time, sometimes drastically.
• C) If a newly issued stock does not have a past history that can be used for calculating beta, then we should always estimate that its beta will turn out to be 1.0.This is especially true if the company finances with more debt than the average firm.
• D) During a period when a company is undergoing a change such as increasing its use of leverage or taking on riskier projects, the calculated historical beta may be drastically different from the beta that will exist in the future.
• E) If a company with a high beta merges with a low-beta company, the best estimate of the new merged company's beta is 1.0.

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Definitions:

Shape Changes

refers to modifications in the form or structure of an object, organism, or pattern, which can occur naturally or through external forces.

Conservation

The principle in environmental science aiming at the prevention of waste and protection of the natural environment; in psychology, it refers to a child's ability to understand that a quantity does not change even when its form does.

Object Permanence

The comprehension in infants that items remain in existence even when they are not visible, audible, or tangible.

Conservation

In cognitive development, the understanding that certain properties of an object or substance remain the same even when its appearance is altered, typically developed during the concrete operational stage.