Firm M’s earnings and stock price tend to move up and down withother firms in the S&P 500, while Firm W’s earnings and stockprice move counter cyclically with M and other S&P companies.Both M and W estimate their costs of equity using the CAPM, theyhave identical market values, their standard deviations of returnsare identical, and they both finance only with common equity. Whichof the following statements is CORRECT? a. M and W should have identical WACCs because theirrisks as measured by the standard deviation of returns areidentical. b. M should have the lower WACC because it is likemost other companies, and investors like that fact. c. If M and W merge, then the merged firm MW shouldhave a WACC that is a simple average of M’s and W’s WACCs. d. Without additional information, it is impossible topredict what the merged firm’s WACC would be if M and W merged. e. Since M and W move counter cyclically to oneanother, if they merged, the merged firm’s WACC would be less thanthe simple average of the two firms’ WACCs.please give me why
Firm M’s earnings and stock price tend to move up and down withother firms in the S&P 500, whil
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