Corporate Finance: Instructor\'s Manual Applied Corporate Finance

Aswath Damodaran 144

Firm Betas versus divisional Betas

! Firm Betas as weighted averages: The beta of a firm is the weighted average

of the betas of its individual projects.

! At a broader level of aggregation, the beta of a firm is the weighted average of

the betas of its individual division.

The same principle applies to a firm. To the degree that the firm is in multiple

businesses, its beta reflects all of these businesses.