Question

while entering a bew industry what is the best measure to estimate business risk a firm...

while entering a bew industry what is the best measure to estimate business risk a firm could face in the market?
1. averaged levered beta if the pure plays in the instustry
2. average unlevered beta if pure plays
3. average levered + average unlevered beta of pure play
4. none
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Answer #1

If it is a pure play Industry that means that it is only focusing on one product segment so it would be better to to use both kind of beta. Both levered and unlevered beta should be used in order to get an optimum estimation of of business risk of the new industry segment.

because the firm is focusing on just one segment it has no appropriate idea about the race of the diversification so it will have to use both levered and unlevered beta in order to to get a fair idea.

Correct option is option(3)average levered + average unlevered beta of pure play

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