Multidivisional firms are often unable to obtain an appropriate surrogate for de

Question

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

Explanation / Answer

B. regressing the division's accounting return on equity in previous years against the return

on a major stock market index

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