Use the Following Information to Answer the Question(s)below

question 94

Multiple Choice

Use the following information to answer the question(s) below.
Luther Industries has 25 million shares outstanding trading at $18 per share.In addition,Luther has $150 million in outstanding debt.Suppose Luther's equity cost of capital is 13%,its debt cost of capital is 7%,and the corporate tax rate is 40%.
-Which of the following statements is FALSE?

• A)There may be reasons to exclude certain historical data as anomalous when estimating beta.
• B)Many practitioners use adjusted betas,which are calculated by averaging the estimated beta with 1.0.
• C)The beta estimated from linear regression can be very sensitive to outliers,which are returns of unusually small magnitude.
• D)If we use very old data to when estimating beta,they data may be unrepresentative of the current market risk of the security.

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Definitions:

Hierarchy Orientation

Hierarchy orientation refers to the degree to which societies, organizations, or groups value structured ranking and the distribution of power among members.

Virtue

A trait or quality deemed to be morally good and thus is valued as a foundation of principle and good moral being.

Freudian Theory

A psychological theory developed by Sigmund Freud that emphasizes unconscious motivations and conflicts as major factors influencing personality and behavior.

Ego

A part of the psyche that mediates between the conscious, the unconscious, and reality, often involved in self-perception and personal identity.