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Question
Discuss why one might use an industry beta to estimate a company's cost of capital.
Generally, an industry beta can be estimated more precisely than a company's beta. This is similar to the estimate of the beta of a portfolio is more precise than the estimate of the beta of a single stock. The estimated industry cost of capital must be suitably adjusted before using for company's cost of capital. For example, differences in the capital structure of the firm and the industry.
Type: Medium
Answer
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