Suppose Chance Chemical Products management conducts a study and concludes that if it expands into a consumer products division (which is less risky than its primary business of industrial chemicals), the firm's beta would decline from 1.2 to 0.9.  However consumer products have a somewhat lower profit margin, and this would cause Chance's constant growth rate in earnings and dividends to fall from 7 to 5 percent. Should management undertake this change assuming that the average market return is 12% will the rate on Treasury notes is 9%?  Chance has just paid a dividend of $2.

Write your recommendation taking into account some of the general issues involved in the assessment (eg. principles involved in company diversification, estimation of beta's etc.)