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:

Hybrid Product Costing System

A costing system that combines elements of both job costing and process costing, suitable for companies manufacturing items that are similar yet not identical.

Conversion Costs

Expenses related to the transformation of raw materials into finished goods, primarily including labor and overhead.

Direct Material Costs

The costs of raw materials that can be directly attributed to the production of a specific product.

Abnormal Spoilage

This is the waste or loss of production materials that exceeds the normal level expected during the manufacturing process.