The beta of a firm is determined by which of the following firm characteristics?
A) Cycles in revenues
B) Operating leverage
C) Financial leverage
D) All of these.
E) None of these.

Question

Quizplus · Accepted Answer

Beta of a firm is determined by all of these firm characteristics: cycles in revenues, operating leverage, and financial leverage. Cycles in revenues reflect how sensitive the firm's revenues are to changes in the overall economy, while operating leverage captures the degree to which fixed costs are used in the firm's operations. Finally, financial leverage measures how much debt the firm uses to finance its operations, which can affect its risk profile and thus its beta. Therefore, all three factors contribute to determining a firm's beta.

The Beta of a Firm Is Determined by Which of the Following