Question

Consider two firms producing smartphones. Firm A uses a highly automated robotics process, while Firm B uses human workers on an assembly line and pays overtime when there is heavy production demand. Firm A and B have a similar amount of financial leverage. Which firm will have a higher beta

Answer 1

Answer:

The firm that will have a higher beta is:

Firm B.

Explanation:

The question here is which firm is more volatile.  Since they have a similar amount of financial leverage, Firm B which uses more human workers on its assembly line and pays overtime will appear to be more volatile than Firm A with a highly automated robotics process.  Firm B faces risks of labor strikes and other vagaries associated with the use of more labor than the market.