If a firm wishes to undertake a project with a different risk than its own, what is the best way by which to estimate the project's beta?

Question

Quizplus · Accepted Answer

The best way to estimate the project's beta would be to consider the beta of a company in the same business as the project. This is because the project's risk would be more closely related to the risk of companies in the same industry or sector. Therefore, using a company in the same business as the project would give a more accurate estimate of the project's beta than using a company in a different industry or adjusting the firm's beta. Using management approximation may lead to bias or subjectivity in the estimation.

If a Firm Wishes to Undertake a Project with a Different