Jim Mahar (FinanceProfessor.com) gives an overview of the article, Growth Options, Beta, and the Cost of Capital by Antonio Bernardo, Bhagwan Chowdry, and Amit Goyal which “looks at the betas of firms’ assets in place relative to the betas of their growth options and finds that the growth options have significantly higher betas. The authors then show that this difference in betas can lead to significant differences in cost of capital calculations.”
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