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Question
Humongous Corporation is a multidivisional conglomerate. The Food Division is undergoing a capital budgeting analysis and must estimate the division's beta. This division has a different level of systematic risk than is typical for Humongous Corporation as a whole. The most appropriate method for estimating this beta isA) the regression coefficient from a time series regression of Humongous Corporation stock returns on a market index.
B) to multiply the company's beta by the ratio of the Food Division's total assets/Humongous Corporation total assets.
C) the regression coefficient from a time series regression of Food Division's net income on the Humongous Corporation's return on assets.
D) the regression coefficient from a time series regression of Food Division's return on assets on a market index.
Answer
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