Multidivisional Firms Are Often Unable to Obtain an Appropriate Surrogate

question 11

Multiple Choice

Multidivisional firms are often unable to obtain an appropriate surrogate for determining the beta of a division. An acceptable alternative technique is to develop a beta through the division's accounting records. This is accomplished by:

• A) regressing the division's projected return on equity against the return on a major company in a similar business.
• B) regressing the division's accounting return on equity in previous years against the return on a major stock market index.
• C) regressing the division's projected return on equity against the historic return on a major stock market index.
• D) None of the above

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Definitions:

Synectics

A problem-solving methodology that encourages creative thinking, often by drawing analogies or by considering seemingly irrelevant elements.

Multi-attribute Utility Analysis

A systematic approach for evaluating and comparing options based on multiple criteria or attributes, used in decision-making processes.

Decision Points

Critical moments or stages in a process where a specific decision needs to be made to determine the subsequent course of action.

Constraints

Limitations or restrictions that affect the process or outcome of a situation, project, or system.