Calculating Project Beta using Regression Analysis

Using Regression Analysis to Calculate Project Beta

Prev Question Next Question

Question

In examining the beta for its machine tools division, the management of Clay Industries has regressed the division's ROA against that of the S&P 500. Which of the following best characterize this method of calculating project beta?

Answers

Explanations

Click on the arrows to vote for the correct answer

A. B. C. D. E. F.

F

In this example, the management of Clay Industries has determined the Beta coefficient for its machine tools division using the Accounting Beta Method. In using the Accounting Beta Method, the monthly (or quarterly) ROE or ROA of a specific division/project is compared to that of a large group of firms. This "large group of firms" is frequently characterized by a major market index, such as the S&P 500 or the Wilshire 5000. The Accounting Beta Method is used more frequently than the Pure Play Method, primarily because it is often difficult to find "pure-play" firms.

Prev Question Next Question