Betas May Vary Substantially Across an Industry

question 58

Multiple Choice

Betas may vary substantially across an industry. The decision to use the industry or firm beta to estimate the cost of capital depends on:

• A) how small the estimation errors are of all betas across industries.
• B) how similar the firm's operations are to the operations of all other firms in the industry.
• C) whether the company is a leader or follower.
• D) the size of the company's public float.
• E) None of these.

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Definitions:

Liquid Water

The state of water that is neither solid (ice) nor gas (vapor), commonly found in rivers, lakes, and oceans.

More Energetic

Characterized by or possessing a high level of energy or vitality.

Pressure Increases

The rise in the force exerted on an object or substance per unit area.

Coriolis Effect

The tendency of particles in motion on Earth’s surface to have an apparent deflection related to the rotation of Earth about its axis.