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

Analyze the effects of government policies on markets, including price ceilings and floors.

Explain the impact of taxes on market equilibrium, price, and quantity.

Understand the concept of tax incidence and how the tax burden is distributed between buyers and sellers.

Evaluate the effects of subsidies and how they differ from price controls.

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Definitions:

Market Value

The price at which an asset would trade in a competitive auction setting.

Equity Method

An accounting technique used by firms to assess the profits earned by their investments in other companies, by reporting these profits proportionate to their stake.

Dividend Policy

A company's strategy or policy outlining how often dividends will be paid out to shareholders and in what amount.

Reported Income

The income figure that a company officially reports to its shareholders and regulatory bodies, often after adjustments and before taxes.