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2. (a) Suppose Carter Chemical Company's management conducts a study and concludes that if Carter expands its consumer products division (which is less risky than

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2. (a) Suppose Carter Chemical Company's management conducts a study and concludes that if Carter expands its consumer products division (which is less risky than its primary business, industrial chemicals), the firm's beta will decline from 1.1 to 0.9. However, consumer products have a somewhat lower profit margin, and this will cause Carter's growth rate in earnings and dividends to fall from 7 percent to 6 percent. Should management make the change? Assume the following: Elrml=10%,'rf=7.5%;D0=$2

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