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Suppose Conglomerate company has three divisions of equal size: An automotive retailer division with a beta of 2, a computer hard drive manufacturing division with
Suppose Conglomerate company has three divisions of equal size: An automotive retailer division with a beta of 2, a computer hard drive manufacturing division with a beta of 1.3, and an electric utility division with a beta of 0.6. If the manager of the firm decides to use one discount rate (i.e., to use the firms overall cost of capital) to evaluate all its projects, what will happen to the firms risk and share price in the long run?
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