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 is
A) the regression coefficient from a time series regression of Humongous Corporation stock
returns on a market index.
B) the regression coefficient from a time series regression of Food Division's return on assets on a
market index.
C) to multiply the company's beta by the ratio of the Food Division's total assets/Humongous
Corporation total assets.
D) the regression coefficient from a time series regression of Food Division's net income on the
Humongous Corporation's return on assets.
B
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