Question

Which of the following companies should have the highest beta? Multiple Choice Orange Company that has low operating and financial leverage. Yellow Company that has highly cyclical revenues and uses high levels of fixed costs. Blue Company that has low cyclical business activity and high operating leverage. Black Company that has highly cyclical business activity and low operating leverage. Red Company that has low cyclical business activity and low fixed costs.

Answer 1

Answer: Yellow Company that has highly cyclical revenues and uses high levels of fixed costs

Explanation:

Beta is used to measure how risky a firm is. A high beta means the risk that is involved is high while a low beta means that the risk that is involved is low.

From the options given, the from with the highest beta will be Yellow Company that has highly cyclical revenues and uses high levels of fixed costs. It has cyclical revenues that are high and also a high fixed cost.