Betas may vary substantially across an industry. The decision to use the industry or company beta to estimate the cost of capital depends on:

Question

Quizplus · Accepted Answer

The decision to use the industry or company beta to estimate the cost of capital is primarily influenced by how similar the firm's operations are to those of other firms in the industry. If a company's operations closely resemble the industry average, an industry beta might be a good proxy. However, if the company's operations are significantly different, it would be more appropriate to use the company's own beta.

Betas May Vary Substantially Across an Industry