The CEO of Ceylon Tea wants to expand into the orange growing business with a...
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The CEO of Ceylon Tea wants to expand into the orange growing business with a $48 million dollar investment. He insists that the beta and return of Ceylon Tea be used for decision making purposes in the orange business. He has explained to his executive team that this is only fair for the existing Ceylon shareholders. If the orange industry beta is higher than that of Ceylon Tea, will this create a bias to incorrectly accept or reject the orange growing projects? Agree or disagree. Base your argument on NPV reasoning.
I agree with the CEO. Use the Ceylon beta.
I disagree with the CEO. The Ceylon beta will create a bias to accept the project.
I disagree with the CEO. The Ceylon beta will create a bias to reject the project.
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